Since the recent ESMA rules capping margin rates for retail traders in the UK. There has been a huge amount of interest in trading offshore. We’ve covered the advantages and disadvantages of using an ASIC broker before, but what is Australian CFD trading really like? Here we get the inside scoop from Matt Murphie MD of leading Australian CFD broker FP Markets.
First off, you are currently CEO of FP Markets a CFD broker based in Australia. How long have you been there and what did you do before?
I have been there since the very beginning. I co-founded FP Markets in 2004 and it was regulated by ASIC in May 2005. Before setting up FP Markets, I worked briefly at CMC Markets and prior to that I worked in London at both Merrill Lynch and Coutts & Co in risk and dealing roles with derivative and equity products.
To give traders an idea of the size of FP Markets. Roughly how many active clients does FP have, how many staff and what’s a typical months FX, Index and Equity volume like?
We have a little over 20,000 active clients. In terms of staff, at the last count we have 81 staff spread across our global network of offices.
In terms of volumes, we are one of the of the biggest CFD brokers in Australia, executing on the Australian Stock Exchange (ASX) close to $1 billion trades each month, which makes up around 1% of the total trades placed on the ASX market globally.
We are well-established as the biggest equity CFD broker in Australia and are now rapidly growing in the MT4 space, with monthly volumes of around US$20-25B per month and growing as we continue to expand globally.
What’s the main advantage of FP Markets? What sets FP apart from the larger European brokers with offices in Australia.
The company’s heritage in equities means that the business model is to provide DMA (Direct Market Access) execution meaning that trades feed straight through to the best price available without interference from a “market-maker”. We have won many industry awards as a result of this, in particular for having the fastest execution speeds, value for money and are officially home to the most satisfied clients in the world according to Investment Trends, which is the largest independent industry research provider. We have competed unbelievably successfully against European brokers operating in Australia and are confident that our DMA and ECN (Electronic Communications Network) execution will set us apart in Europe as it has in Australia.
The company has invested millions of dollars in bespoke infrastructure, platforms, client portals, analytics and reporting and uses Equinix NY4 Data Centers (for speed of execution) and advanced price aggregation technology to ensure the best available prices are offered. Clients in Australia are confident that if they are with FP Markets, they are on the very best available technology and we hope to earn a similar reputation in Europe.
FP Markets is different from European brokers with offices in Australia as we do not have the same history of spread-betting nor do our origins lie in being a market-maker. Our heritage is in DMA/ECN and that very much remains in the company’s DNA to this day with our multi-product offering across a number of platforms.
Have you seen an influx of UK and European traders since the ESMA rules put limits on margin rates for retails traders.
There have certainly been a rise in the number of enquiries we have received but note that FP Markets already attracts predominantly professional traders who are covered under the ESMA Professional Trader exemption.
In the UK the FSCS offers protection on clients funds up to a certain amount and many brokers have put in place independent insurance for client funds. Does ASIC offer similar protection for Australian traders as well as traders based off shore?
ASIC does not offer a protection on client funds as with the FSCS in the UK, however ASIC do have rigorous client money segregation and client money laws.
ASIC remains one of the toughest regulators in the world and has its own unique protections in place requiring the company to be adequately capitalized and ensuring that clients funds are held in line with Australian Client Money Laws. This means that client funds are not only held separate from the company’s funds, ASIC also requires that all funds are reconciled each day, and reconciliations must be submitted to the regulator monthly. ASIC enforces among the highest industry standards in the world and has a reputation of providing high levels of client protection.
Regulation also requires that brokers hold significant value in PI insurance.
Do you think it’s right that inexperienced traders should have their leveraged exposure capped and do you expect ASIC to bring margin rates and bonus promotion rules inline with ESMA?
I support the need for change but I think that it should focus on education around risk management and risks of the product itself rather than capping leverage. Clients should be well-informed but ultimately, I believe in free will, and, provided clients have the knowledge required, I do not believe that the decision-making process should not be taken out of their hands completely. The knock-on effect of over-regulation is inevitably traders seeking unregulated, offshore trading firms to continue trading as usual. Ultimately, people want to trade.
Regarding ASIC, there will likely be some consolidation in the market and a move towards addressing some of the issues dealt with by the ESMA regulations. However, ASIC may wait to see the success or otherwise of the new rules (given their temporary nature) before they move to make changes.
What’s your view on cryptocurrencies? Fad or here to stay as an asset class?
Cryptos are clearly a source of great interest and have created a buzz around the financial industry bringing new people into the markets who would previously not have traded but in my view they are yet to be considered an asset class.
And finally, what three trading websites couldn’t you do without?
Bloomberg, Reuters and Apple News which aggregates all the news on my iPhone.
Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.