Two curious things happened today. The first, was when I received an email requesting commentary (or a link) for a fast growing forex broker and the second, when I passed a lonely broken scale on a side street in Paris. The connections between these random events usually only amuse me, but in this case the humility with which I received the request, motivated me to do a little thinking.
The simultaneous discovery of a broken street-scale made me laugh. A new social program? Shouldn’t it be in NY? Galaxy is asking why there’s only 2 paws, how do I explain? It’s true, that’s her WC not mine.
I’m not a forex trader but follow closely the EURUSD pair and lately the EURAUD pair. I trade with Interactive Brokers which, once you manage the platform, works for my trading style. It’s scalable. So it struck me as odd to receive this email, at first I thought it was spam. I trade futures and options, but it landed in my personal email, and appeared to have been generated by a human. That itself is odd, sadly.
Forex Trading has exploded in recent years, particularly in the UK where any google search will turn up literally hundred’s of brokers. Apparently, US regulations have handicapped the US-based forex broker and the UK has a significant advantage, at least from a corporate accounting, tax, and regulations perspective. Yet the competition must be fierce, hence that email. So who regulates forex? The CFTC (Commodity Futures Trading Committee), The NFA (National Futures Association), and the FSA (Financial Services Authority), plus various national bodies. It’s a dog eat dog world, better stay nimble.
The UK has such a vibrant forex market because spread betting profit is not taxed as income. Forex trading appears to go hand-in-hand with spread betting. In fact forex pair trading can theoretically be viewed as a ‘spread’, true enough. Here’s a decent comparison between the two. On the other hand, when you consider leverage and expiration, spread betting closely resembles the futures and options market, though there are a few major differences: in the UK you won’t pay capital gains on spread betting profits because the tax authorities have designated it as gambling, the trading is off-exchange, it’s not limited to exchange hours, and new products can be created quickly and easily. Is spread betting gambling or isn’t it? Less than 2 in 5 spread betters actually make money and that corresponds well to the markets I know. The weighty question I really have is: are futures and options traders NOT gambling just because they pass through an exchange?
To be fair, person that got me thinking about all this is somehow connected with Alpari, though I have no idea how. Alpari looks to be one of the leading players in forex/spread betting. They have a rich educational offering, and offices juggling legal regulation in Japan, UK, Russia, Cyprus, Dubai, US, India, and Germany, even a nice sales person named Leila. Maybe I can get some more information from Paul Kiff, their global head of trading. (But he needs to update his bio and delete MF Global.) I’m curious how this industry, technically a gambling industry, treats it’s best clients, do they roll out the red carpet for French residents? Why do the executives come from the financial derivatives markets? Why are the regulators futures/commodity authorities? That mix looks contradictory to me. In any case, thanks for the email Jake, Alpari looks like a very serious outfit.
If you’re in the UK and weighing forex and spread betting they look as good a place as any to start. If you’re in the US you might be better sticking with the CBOE and NYMEX.