The Sunday Times - UK (2022-04-10)

The Sunday Times April 10, 2022 5

“[In institutions] there’s a complex

supervisory system — for good reason,”

he said. “But at home, there is no one

looking over your shoulder.

“This means that people consistently

use this internal accounting mechanism

where they discount their losses and they

think they’re winning. It is the mindset of

a gambler.”

The platforms say their customer

trades are monitored by a risk team,

though there is no requirement for a firm

to intervene should a customer’s trades

become irresponsible or dangerous.

They reiterate, too, that their business

model does not depend on clients losing,

unlike the gambling industry. As some

people lose money very quickly, others

make it in the same short time. It can be

highly profitable.

IG Index emphasises that CfDs are not

suitable for mass-market distribution and

it is a proponent of regulation and cus-

tomer protection. It maintains that

investing platforms are markedly differ-

ent to gambling. The Financial Conduct

Authority (FCA) requires investment

firms to act in the best interests of its cli-

ents, as well as identifying the target mar-

ket for which the products are suitable.

CMC Markets and Trading 212 did not

comment.

Rick Eling, at wealth manager Quilter,

said customers who lack the sophistica-

tion needed for trading of this kind are in

Lee Rolleston at

the Priory clinic

treats day

traders. “These

individuals call it

investing, but it’s

a gambling

addiction”

had to advertise on their websites the

proportion of retail investors who lose

cash trading CfDs. Today on eToro, it is

67 per cent; and at IG Index, it is 68 per

cent.

For many of the UK’s vulnerable new

self-styled traders, these statistics only

add to the seductive nature of the chal-

lenge, and the dizzying — and potentially

addictive — sense of triumph when a

trade comes off.

Sarah Pritchard, executive director of

markets at the FCA, said it would take

action if it saw “poor conduct and con-

sumer harm”. But some experts do not

feel regulation is moving fast enough.

The platforms themselves reject the

comparison with gambling. They argue

that they are appropriately regulated and

that they turn away “thousands” of cus-

tomers who do not “pass” their require-

ments. Knowledge questionnaires are

required by the FCA; it is the responsibil-

ity of the platform to determine

“whether the client has the necessary

experience and knowledge in order to

understand the risks involved”. IG Index

said it rejects 20 per cent of clients each

month who want to open an account.

However, when a Sunday Times

reporter set up accounts with Plus500,

CMC Markets and IG Index, there did not

appear to be any significant barriers to

participation in CfD trading and spread

betting. The reporter took each plat-

form’s short knowledge test and declared

no previous experience of investment,

day trading or leveraged products — and

said they wanted to partake in high-risk

day trading. All the accounts were

approved.

SOLICITOR WHO BECAME ‘OBSESSED’

Rolleston at the Priory said that in his old

job as a day trader for banks in the 1990s

and 2000s, he was addicted to trading —

“the money, the ego, the prestige and the

status”. But he said it was always kept

under control by his bosses. When peo-

ple trade with their own money, it can

become much more emotional and

impulsive. “They feel they can always

make a bit more — it’s never enough.”

For James, 51, a solicitor, the ease of

day trading from his smartphone was his

downfall. He first realised he had a prob-

lem when he found himself checking his

phone under the table at a work meeting.

James had heard about day trading

from an old friend on Facebook in 2016.

Before long, he was checking his trading

account 50 times a day. “The markets are

almost like fruit machines — they change

every couple of seconds,” he said. He put

“all available income, all liquid assets”

into trading, losing up to £3,000 in a day.

He traded compulsively until 2020,

when he went to a gambling addicts’ sup-

port group. Even now, he finds it difficult

to resist entering into a trade — the charts

are so easily available on the internet.

“I CONSIDERED SUICIDE AFTER I LOST

£43,000 IN HOURS”

For some, addiction to the platforms has

taken a big toll on their mental health.

Josh, 32, a Brit who works in IT and

lives in Singapore, started day trading in

January 2021, after hearing about it from

friends. He was trading options, a lever-

aged product that, similar to CfDs, allows

retail customers to speculate on price

movements without owning the underly-

ing asset. At first Josh won big, making

£60,000 in three months.

He started taking bigger positions,

sometimes placing up to £40,000 on a

NEW RULES FAIL TO PROTECT ADDICTS

Apart from platforms having to publish

information on the losses made by their

customers, the new FCA regulations in

2019 stated that a client could not lose

more than the total amount in their

account. This means they are automati-

cally removed from a trade if they get to

that point. When this happens, their

account is liquidated and they can be left

with zero. Platforms were also required

to have compulsory risk warnings and

were no longer allowed to offer incen-

tives to prospective customers.

But the warnings have become “white

noise” to many people, said Carol

McNaughton, co-author of research pub-

lished last year by the consultancy Brit-

ain Thinks and the FCA. Only 41 per cent

of investors with fewer than three years’

experience believed that losing some of

their money was a genuine risk.

“People are used to seeing the dis-

claimer, and for those with the gambler

mindset, which is a small proportion, it’s

about bravado — they’re proud of being

risk takers,” McNaughton said. “It’s diffi-

cult to make them listen.”

These “proud risk-takers” are in evi-

dence across thousands of groups on

Reddit and Facebook for amateur day

traders. They have developed a group

identity — they are the little guys, taking

down the big banks and hedge funds that

have held power for too long.

In these groups, any warning from

mainstream financial institutions that

what they are doing is dangerous is

rebuffed. They think the hedge funds are

threatened and are simply trying to

maintain their influence. Like a conspir-

acy theory, denial only goes to

strengthen their identity.

COMING BACK TO REALITY

In Castle Craig rehabilitation centre, nine

patients sat in armchairs in a circle. They

were in a wood-panelled reception room

with big windows out onto the lawn. It

used to be a children’s hospital and,

before that, a stately home.

Seven of the nine in this gambling

addiction therapy session have compul-

sively traded online. They are all male.

“At first I transferred only a small

amount,” Tom said. “But then it became

more and more, then I lost again... and

you keep paying in, keep chasing the

win, and then you check your bank bal-

ance and it’s gone.”

Everyone nodded. The gamblers and

the traders understand each other. They

are in the same therapy session, after all.

The office of Tony Marini, the clinic’s

specialist gambling therapist, has walls

covered with letters from patients whom

he has helped to recover, next to crayon

drawings of thanks from their children.

Patients wake up at 7am and begin the

day with mindfulness sessions and then

breakfast — followed by therapy, group

work and exercise. The markets open

and close at the same time each day, so

trading addicts develop a body clock.

Castle Craig works hard to override this.

Phones and laptops are taken away

when they arrive, with limited access

during the week to a shared computer.

“We start to bring them back to reality,”

said Marini. “Into the here and now.”

It took Sue a long time to put herself

together. Today, she lives with her two

dogs in a cottage on the south coast. “I

don’t particularly want to get married

again,” she said. “There’s too much to

lose. I don’t want to be financially inter-

twined with anyone.”

single trade. “I was in this trance-like

state,” he continued. Once, he lost

£43,000 in hours, as he watched the mar-

ket plummet. He barely slept and the

next day considered suicide.

Eventually, Josh went to Gamblers

Anonymous meetings and found a thera-

pist. “I’m worried that many people

don’t know they have a gambling addic-

tion, just because it is the stock market.”

MAN WHO HID A £300,000 SAVINGS

LOSS FROM HIS WIFE

It is common for those addicted to day

trading to keep the extent of their losses a

secret from family members, hoping to

win back the money. The consequences

for relationships can be devastating.

Sue, 67, had no idea that her husband

of 19 years had traded away all their life

savings until she went to sneak a Valen-

tine’s card into his briefcase.

Her husband, who had a prestigious

job, had been hiding debt letters in the

case. Sue found statements from 14 differ-

ent credit card firms. “I couldn’t believe

it,” she said. “My world fell apart.”

He had been day trading on a platform

called E-Trade, now available only in the

US. In just six months he burnt through

their £300,000 joint savings and ran up a

further £147,000 in credit card debt.

While gambling sites can’t take payments

from credit cards, trading platforms can.

“He explained to me that he’d bor-

rowed the money because he was losing

money, then had to borrow more and

more to try to get back what he’d lost.”

His losses were amplified because he had

been trading CfDs.

The couple had planned to spend their

savings on trips around the world in

retirement. Now they had nothing. Their

marriage broke down and they divorced.

SOLD

7

1.8m

People started day trading

during the pandemic

54

Trading addicts at Castle

Craig — up from 3 in 2016

DAY TRADING IN NUMBERS

400,000

IG Index platform users – up

from 178,5000 in two years

5%

Calls to a gambling helpline

from trading addicts

But of course, the

downside is bigger, too. If

the gold goes down to £80

an ounce, you will lose

£200, even though you

only actually invested

£100. The broker will take

the £100 you originally put

forward, and another £100

directly from you via your

online trading account

8

The situation could be

compared to a mortgage. If

you buy a house worth

£1 million with £100,000 of

your own money and a

£900,000 loan from the

bank, you will still owe the

bank £900,000 whether

the house rises in value or

not. If the value fell to

£800,000, you would have

lost £200,000 — twice

what you originally

invested

9

The difference is that the

value of your home is

unlikely to fluctuate wildly,

or fall by half — or even or

more — within seconds.

With day trading, these

outcomes are possible,

which is why the vast

proportion of day traders

lose money

10

The danger, experts say, is

that the platforms are

highly addictive, and that

losing money can actually

feel like a reason to

continue trading. Addicts

reason that, theoretically,

they could win the money

back just as easily by

hitting the upswing

11

Offering

these

trades

to the

public is

insane

effect being “exploited” by the platforms.

“The principles of investing are solid and

slow and boring — it’s not sexy,” he said.

“Investing involves patience and disci-

pline. Day trading is all about flash-in-the

pan gains — it’s a loser’s game.”

APPS THAT OPERATE “LIKE CASINOS”

You must be over the age of 18 to open an

account on the trading platforms. They

offer “fake” money to practise trading,

before graduating to a “real” account.

You transfer a balance from your debit or

credit card and have access to thousands

of different markets. There are frequent

warnings that most investors lose money.

But to clinicians, these platforms

are enabling the same harms as

gambling, with no proper recourse

to help. Because, from a regulatory

point of view, this activity is classed

as investing, there is no signposting

to addiction services, and no special-

ist treatment.

Many believe that the platforms,

which make money on every trade —

win or lose — are encouraging high-risk

and highly addictive “investment” tech-

niques among people who do not have

sufficient understanding of the products

involved.

About 5 per cent of calls to GamCare, a

gambling addiction helpline, are related

to online trading. “We are largely funded

by the gambling industry, so we are not

technically funded to work with this

cohort [of problem traders],” said chief

executive Anna Hemmings. “But there

isn’t any requirement for the platforms to

signpost to organisations like ours.”

Matt Zarb-Cousin is co-founder of

Gamban, an app that can block access to

gambling websites and apps. He

explained that “if you lost a huge amount

of money on those sites, there would be

nothing there that suggested you were

anything other than a bad trader”.

His main concern is platforms offering

access to leveraged, speculative products

— and in particular CfDs, which allow

traders to bet on the movement of a

stock, rather than buying an actual share.

A CfD is an agreement between you

and the broker to exchange the differ-

ence in the price of a stock from when a

position is opened to when it is closed.

You put forward, for example, 10 per

cent of the value of the stock. The broker

lends you the rest to give you exposure to

the full movement in price. This means

that you receive an amplified win in com-

parison to your initial bet if it goes your

way — and an amplified loss.

Spread betting, another popular day-

trading product, is almost identical in

both design and risk. It was invented by

IG Index in 1974 and allows speculation in

the price movement of a stock. A cus-

tomer bets on how many “points” it will

move up or down, using leverage to maxi-

mise gains and losses.

Spread bets and CfDs are largely

“retail” products, allowing non-profes-

sionals with modest capital to benefit

from movements in the stock market.

These are very high-risk — so much so

that CfDs are illegal in the US and Hong

Kong. “Platforms offering CfDs and lever-

aged products are casinos,” believes

Zarb-Cousin. “It is appalling.”

In 2016, the FCA found that 82 per cent

of clients had lost money executing these

types of trade. The FCA became so con-

cerned about firms aggressively selling

these products that it tightened its regula-

tions in 2019. This move meant, among

other things, that trading platforms now

seconds

don’t fear unemployment,

you’re more likely to take on

credit card debt and draw

down your savings,” he said.

French reckons that

consumers are entering this

cost-of-living crisis in a

stronger position because

“real wages”, which take

account of inflation, are

actually 3 per cent higher

than they were before the

pandemic — although he does

not expect that to last.

The closely watched REC

survey found that starting

salaries for permanent staff

registered the biggest

increase since the survey

began 24 years ago.

Businesses will be hoping

that the strength in the jobs

market buoys consumers,

although some are not sure.

Cathy Frost, 57, owner of the

Loveone gift shop in Ipswich,

said people are now haggling

over prices. She said

someone asked for a deal on

the price of four £7 pin

badges during a recent visit.

“I knocked off a couple of

pounds — that was my profit

for one of those badges, she

said.

forecast it will hit 8 per cent

this year as energy price

inflation bites. Half of that is

made up of energy and food.

“If inflation was being driven

by non-essential items and

luxury goods like watches

and cars, the economic

consequences wouldn’t be as

serious,” he said.

Signs are emerging that

How many

price rises

can Britons

stomach?

The economy needs us to keep

spending — but inflation is tipped to

soar again next week. Jill Treanor asks

whether belt tightening is on the way

years and then a bounce back

as lockdowns eased. Now

inflation is hitting hard as

businesses cannot find

enough supply to meet the

increase in demand.

Meanwhile, the war in

Ukraine is putting fresh

pressure on energy prices.

A year ago, all the talk was

about how much money

people had accumulated in

the enforced lockdowns;

during Covid, the savings

ratio (the amount saved

relative to income) reached a

record 23 per cent. Now

economists are watching to

see how consumers behave as

prices soar for essential items

such as food and energy.

The Office for Budget

Responsibility has calculated

that between the start of

2020 and the third quarter of

2021, households saved about

£230 billion more than in the

equivalent period before the

pandemic. The fiscal

watchdog expects the savings

ratio to hit a record low of

2.8 per cent at the start of

next year as households try to

keep spending.

Data on Wednesday will

Regular customers at the

Wivenhoe on Wednesday

were quick to notice that the

price of a three-course lunch

had gone up from its usual

£17.50 to £19.50.

Oliver Brown, general

manager of the four-star hotel

and restaurant on the border

of Essex and Suffolk,

explained that he had little

choice after the price of

ingredients rose dramatically.

“This time last year, a breast

of chicken cost in the region

of £1.55; now, it’s over £2,”

said Brown, 49. So far, he

added, he has not had any

negative feedback.

Other businesses across

the country will be hoping

they too can raise prices

without deterring customers,

whose spending power is

vital to keeping the economy

on track. Consumers fuel

two-thirds of Britain’s gross

domestic product (GDP); how

they respond to prices rising

faster than wages matters.

Britain is facing a cost-of-

living crisis in a new phase for

the economy after the Covid

crisis. First came the biggest

economic contraction for 100

Cathy Frost has found that

people haggle over prices

at her shop in Ipswich

consumers are growing wary.

A survey last week from

consultancy PwC pointed to a

“complete reversal” in

sentiment from a year ago,

when spending was on

people’s minds. They are set

to spend less on non-essential

items, PwC found.

Andrew Goodacre, chief

executive of the British

Independent Retailers

Association, said: “It’s just so

hard to predict one day to

another... whether people

are going to spend or not.”

Other data this week will

also provide a clue on

consumers’ willingness to

spend: unemployment. The

jobs market has defied

expectations coming out of

the pandemic. Instead of

1980s-style jobless figures of

above 10 per cent, the labour

market is tight, with 3.9 per

cent unemployed and a

record 1.3 million vacancies.

Simon French, chief

economist at investment

bank Panmure Gordon, does

not think this should be

overlooked in judging

whether consumers will have

an appetite to spend. “If you

show that inflation in March

was even higher than the

6.2 per cent recorded in

February — already the

highest rate for 30 years.

Fabrice Montagné, an

economist at Barclays, has

The broker will keep the

trade open only for as long

as you have money in your

account to cover any

potential loss. If you had a

total of only £200 in your

account, across various

different trades, it would

have automatically sold

your shares and frozen your

account when the price of

gold reached £80. You are

not allowed to be in minus

numbers

lYou are the broker, the trading

platform, the middle man. You

can buy an ounce of gold from

the stock market for £99. You

then sell it to the trader on your

platform for £100. You make £1

on “the spread” — the difference

between buy price and sell price

lIt doesn’t matter whether the

price leaps up to £120 over the

course of the day, or plummets to

£80, and it doesn’t matter

whether your trader wins or

loses. You make money on the

volume of trades that are made,

and the width of the spread

HOW THE

COMPANIES

MAKE MONEY