September 26, 2013

InterTrader Direct, an online broker, has launched spread betting and contract for difference (CFD) trading through its MT4 platform on markets including forex, indexes and commodities.

The spread bets are executed with automated processing via ECNs and through straight through processing (STP) with no dealing desk. “We do all this complex aggregation in the background,” said Shai Heffetz, head of financial spreading betting and CFDs at InterTrader Direct, an online broker that provides clients with a direct trading system for spread betting free of dealer intervention.

Behind the scenes, the firm contracts with different liquidity providers serving as market makers in forex, indices and commodities. Names such as Citi, UBS, Goldman Sachs or Barclays are on the other side of the trade. “All of them are ECNs that connect at the end of the day to a big bank or a hedge funds,” he said.

“We are only brokering the deal. We transfer that deal to another liquidity provider,” said Heffetz, explaining that his firm never has any exposure to the client's positions to remove any potential for conflicts of interest.

This makes InterTrader the first to offer a “Pound-Per-Point” spread betting with “No Dealing Desk” on ita MT4 platform. According to the release, clients can trade forex at tight spreads, plus low spreads on indices and commodities, through a direct trading system and no dealer intervention.

InterTrader handles all the currency translations in the background and makes sure the trades goes through and the size is correct. “On top of that, we are not counterparty for the trade. We offset the risk to someone else,” emphasized Heffetz.

There is only one other provider that offers a spread betting service, according to Heffetz. He cited a market maker that lacked his firm’s scalability, but didn’t name the firm.

The spread refers to the difference between the bid–and-ask-price that the spread betting platform offers. When someone places a spread bet, they are not buying an underlying stock or futures; they are betting per point or penny movement in the underlying market.

“The size of the movement is always worth £1 (British pound) for every 1 point movement, or lose £1 for every 1 point movement in value, explains Heffetz.

For example, someone can bet on the spread between the Dow and the FTSE index. If they bet that the Dow will rise, and it falls 100 points, they lose 100 pounds for every point it falls, he says.

In FX, if an individual buys a stake in the Eurodollar, he/she might buy £10 per pip, and would make £10 for pip the price of the euro against the dollar rises (and lose £10 for every pip the price of the euro falls).

By posting margin, a trader can leverage the amount of money they are betting on the spread. Since the losses can be steep, MT4 provides automatic stop losses that can be set by the user when the stake is taken.

Currently 70 percent of the volume is occurring in FX while 30 percent is in indices and commodities.

Users can trade manually or run expert advisers to automate trading, analysis and strategy testing. These so-called expert advisors can tell traders which trades to make or be programmed with algorithms to automatically execute the trades on a live account.

The service was rolled out at the end of August internally and offered to clients at the beginning of September.

Retail clients are acceptable but they have to understand trading in derivatives and in asset classes, noted Heffetz. “This is a complex product. The regulator actually qualifies it,” said Heffetz, who said the firm is regulated under MiFid.

InterTrader Direct, whose sister company is InterTrader.com, is owned by bwin.party digital entertainment plc, among the world’s largest online gaming businesses with a market cap of £1 billion.

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Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...