The judge at first instance held that IG was not in breach of its statutory duty. That finding was not appealed. The judge also concluded that the customer had wholly failed to mitigate his loss for the same reasons that had led him to his conclusion on causation.
The customer appealed the rulings on both causation and mitigation. The Court of Appeal referred to the duty of care in tort to protect people from causing harm to themselves. The Court had not been referred to any reported case in which a party had been held to be under a contractual duty to protect a customer against himself.
The Court considered whether the provision requiring IG to close out bets was intended to protect the customer. If it was, then it would follow that its breach caused the loss suffered by the customer. The Court found that the provision of the Customer Agreement requiring IG to close out bets was not intended to protect the customer. The provision in the Customer Agreement did not contain such express words and was simply not intended to protect the customer against his own gambling addiction or considered choices.
This case confirms that a duty to protect others from inflicting harm on themselves is rare in tort law and even more exceptional in contract law. Very clear express words in the contract spelling out the duty would be required before the court could conclude that such a duty arose. This decision will be welcomed by spread betting companies and indeed other financial institutions with customers who might otherwise attempt to rely on an alleged contractual duty to recover their losses.
On 20 July Master Fontaine gave judgment for the Claimant on most of its claim and allowed the Defendant to defend the balance. On appeal from Master Fontaine on 29 June Macduff J gave summary judgment for the Claimant for the whole of its claim. However Lewison LJ at para 48 noted that there is no order dismissing the Defendant's counterclaim. Accordingly the effect of dismissing the Defendant's appeal against Macduff J's order is that while the Claimant is entitled to the judgment sum, the Defendant is free to pursue his counterclaim.
Lewison LJ added that if the Defendant does pursue it, "it will be open to [the Claimant] after proper amendment of its statement of case to advance the argument on the interpretation of the Customer Agreement that Mr Mayall sought to develop; and to argue that the counterclaim is incompatible with the judgment in favour of [the Claimant]".
Spread betting is not so much or not merely a bet, although it can be described as such, as a form of contract for differences. It enables a customer to take a position on a market or an event for a very small stake. Thus if the Dow Jones index is, say, at 10,, one can "buy" or "sell" the market at a spread around the index of, for the sake of example, 10 points either way, to If one buys, one is betting that the market will rise above If one sells, one is betting that the market will fall below If one buys and the market rises, one stands to gain 1 for every point that the index exceeds If one sells and the market falls, one stands to gain 1 for every point that the index drops below If, however, one calls the market wrong, then one will stand to lose 1 for every point that the index exceeds the spread point in the wrong direction.
Thus if one sells at 10, with a sell spread point at , one will make 1 for every point the market falls below and lose 1 for every point the market rises above Until the bet or "trade" is closed, the gains and losses are merely "running" gains or losses. They are real enough, but constantly changing with every change in the index, and have not yet been fixed. Closing the bet will fix the position, win or lose. Unlike a classic bet, the customer can of course lose more than his stake.
Indeed, on the example given, of a sale spread point of when the market is at 10,, if the market does not move an inch, the customer will lose 10 for every 1 staked. Nor, again unlike a classic bet, are his winnings fixed at the outset by an agreement on odds.
In theory winnings based on rising markets are infinite in practice of course they are not and losses based on falling markets are limited only in so far as they cannot exceed the consequences of a fall in the index to zero. Normally, of course, to gain by 1 for every rise or fall of a single point in a stock market index such as the Dow Jones would take an investment of significantly more than 1. In effect, one's 1 bet commands a position in the market significantly greater than the stake.
In other words, there is a large element of gearing in the trade, and the situation is correspondingly volatile. Where the market in question is itself in a volatile phase, the risks become even greater. Thus, if the Dow Jones is capable of moving within a range of or points in a single day, the customer can be to richer or poorer per 1 stake within a matter of hours of his trade.
On a trade of , those figures become 10, to 20, The spread betting operator who accepts these trades does not bet against the customer, but lays off the trade elsewhere. Ultimately, I suspect, the trade is accumulated in some form of derivative transaction on a futures exchange, but I do not know. The operator, however, by laying off the bet elsewhere seeks to profit by means of the spread. The means by which it does that, and the terms on which it does that, however, are not a matter for the operator's customer: nor, in the present case, have the applicable terms been disclosed.
Term 2 of the Customer Agreement warns the customer that "Entering into Bets with us carries a high level of risk and can result in losses that exceed your initial deposit". Term 6 explains how a customer can open a bet. Term 6 1 states: "You will open a Bet by 'buying' wagering that a specified Index will go up within a specified period or 'selling' wagering that a specified Index will go down within a specified period.
In this Agreement, a Bet that is opened by 'buying' is referred to as an 'Up Bet' and a Bet which is opened by 'selling' is referred to as a 'Down Bet' ". Term 14 enables the Claimant to require a customer to provide deposits and margin in cleared funds. Term 15 is concerned with payments and set-off.
Term 15 1 provides: "All payments to be made under this Agreement other than payments under Terms 14 6 and 14 8 that are due and payable in accordance with those Terms respectively are due immediately on our Communicating a demand. All payments must be paid by you, and must be received in full by us for value, by a where the demand is Communicated before 12 noon on any day, not later than 12 midday on the business day following the day on which our demand including our deemed demand in accordance with Terms 14 6 and 14 8 is Communicated; or b where the demand is Communicated after 12 midday on any day, not later than 4pm on the business day following the day on which our demand including our deemed demand in accordance with Terms 14 6 and 14 8 is Communicated.
These timeframes are subject to the rules of any Underlying Market that have been advised to you by us in the event that the Underlying Market requires payment of margin to be made sooner. Term 16 concerns default and default remedies. The material parts of Term 16 provide: " 1 Each of the following constitutes an 'Event of Default': a your failure to make any payment including any deposit or margin payment to us or to an Associated Company of ours in accordance with Term 15; b your failure to perform any obligation due to us; 2 If an Event of Default occurs in relation to your account s with us or in relation to any account s held by you with any Associated Company of ours, we may at our absolute discretion at any time and without prior notice: a close all or any of your Bets at a Closing Level based on the then prevailing quotations or prices in the relevant Underlying Markets or, if none, at such levels as we consider fair and reasonable; e close any or all of your accounts held with us of whatever nature and refuse to accept further Bets from you.
Term 19 provides, so far as is material: " 1 You represent and warrant to us, and agree that each such representation and warranty is deemed repeated each time you open or close a Bet by reference to the circumstances prevailing at such time, that: a the information provided to us in your application form and at any time thereafter is true and accurate in all respects ". Term 31 "Interpretation" provides that: "'Business day' means any day other than a Saturday, Sunday and a UK public holiday.
The relevant rule in force at the material time is Rule 2. The client best interests rule ". Section 5 of the Financial Services and Markets Act provides: " 1 The protection of consumers objective is: securing the appropriate degree of protection for consumers. Section of the Act provides: "A contravention by an authorised person of a rule is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty.
Mr Waters was not employed by the Claimant at the time when the events with which we are concerned occurred. The relevant facts are not materially in dispute. I therefore proceed to set out my findings of fact. The Defendant is a property developer.
He bought residential properties through a company called Grindale Ltd "Grindale" which he owned jointly with his wife and of which he was managing director. The properties were then rented out through a business called Broadhurst Estates, of which he was a partner. He said that in he owned about residential properties. In July the Defendant was interested in trying margin trading, he says, "purely as a hobby". He had no previous experience of margin trading, contracts for differences or spread betting.
He opened a margin trading account with IG Markets Ltd, a company in the same group of companies as the Claimant. Later that year, in November he opened a spread betting account with the Claimant. The group of companies has made substantial profit recently in excess of , and the net value of his investments is increasing steadily.
The Defendant said that the only information as to his financial position he provided on the Claimant's application form was the value of his property, less mortgage, which he stated to be , Following the opening of the account with the Claimant, the Defendant conducted substantial trading over the period from December to October The Defendant stated that his activity on the spread betting account varied considerably between and He said in his witness statement made on 19 June that his usual stake was between 10 and para He said that was his recollection when he made his witness statement.
However the statements of account which are now before the court show that whilst the majority of the Defendant's bets during the period were in the 50 to range, there were a number of bets significantly above those figures, and in the 1,plus range during and He said that "betting on RBS seemed like a sure thing: the opportunity of a lifetime". The relevant history in relation to the bet on RBS that caused the losses to the Defendant's account that are the subject of the present proceedings began on 11 August The statement of the Defendant's account dated 11 August 2.
They were quarterly bets, opened on 17 June , due to expire on 16 September On 3 September Mr Tom Gillard of the Claimant sent an e-mail to the Defendant notifying him that there was a margin of 97, required. However for reasons I shall explain see para 69 below the first margin that requires consideration is that of 15 September On 9 September the Defendant informed the Claimant that he had decided to roll over his two "up" bets on RBS, for which the last dealing day was 16 September , until the end of the next quarter, 16 December His existing "up" bets were closed and an equivalent up bet for the same total of 7, The terms were 2.
The Claimant therefore adjusted the Defendant's positions in RBS to reflect the Stock Dividend; the amendment also incorporated the price dilution in the share price. On the same day, 15 September , Mr Nabille Helal of the Claimant sent an e-mail to the Defendant requesting payment of the margin of ,, on his account.
On 16 September Mr Helal called the Defendant at his offices and spoke to his secretary, who advised that he was on another call and would return his telephone call. At on that day the Defendant e-mailed Mr Helal, apologised for missing his call and said: "Please note that I have arrange a transfer to your account on Friday Please confirm. On Monday 22 September, the funds not having been received from the Defendant, Mr Helal telephoned the Defendant and left a message on his mobile phone to return his call.
On Tuesday 23 September Mr Helal called the Defendant's mobile and left a message for him to return his call. He also contacted the Defendant's office and left a message asking for the Defendant to call him back. By e-mail timed at on 23 September the Defendant wrote: "Thanks for your phone call Please note that I have transfer last Friday 2 transfer of ,k each Please advise, it should come from oversee bank ".
With regard to his e-mail on 23 September explaining that he had arranged for two separate transfers of , from an overseas account on the previous Friday, this was a reference, the Defendant said, see Defendant's witness statement, para 77 to an account that he had in Turkey where he had approximately , of savings.
He was advised that the Defendant was at a meeting. On Monday 29 September Mr Helal called the Defendant's mobile, and then his office, and left a message for him to return his call. On Wednesday 1 October Mr Helal called the Defendant's office and left a message asking for the Defendant to call him back. On Thursday 2 October Mr Helal called the Defendant at his office and was advised that the Defendant would call him back in minutes.
The Defendant said: " Did you get the money? After a break of a few moments the Defendant said: "Yeah, according to my confirmation it came from called [Gurney] in Turkey, HSBC I don't know what the date: 22, 24, 26 was sent at what date was that, or what day, I don't know, I am just trying to remember, got no calendar? The Defendant referred to the account details. He then said: " I'll send you now, from my account, , by transfer [OK] and if you don't get it on Monday I'll send you the rest from here.
I just don't understand why it didn't happen. With regard to this conversation with Mr Helal on 3 October when the Defendant said that he would send , at least within 24 hours and then a further , each day during the following week, he said in his evidence that he thought that this was "achievable if difficult".
On Tuesday 7 October, at They spoke at 4. Mr Helal asked the Defendant if he had checked his account and was advised he had not. He explained that no funds had been received and the amount due was now over 1. Mr Helal continued: "Now I have to ask you that we receive at least half of that by tomorrow.
Because the original margin call has been due for about three weeks now, so we have been fairly sort of lenient. I know you've had a holiday in the meantime but I can't allow the exposure to remain without receiving any funds because it is quite a bit I mean the majority of it is a deficit on the account, it's not just a margin or a deposit funding needed, erm, so it needs to be getting its way to be cleared by Friday, but I would require half of it by tomorrow or you need to send a TT and sort of show that those funds are coming in ".
In relation to this conversation on 7 October, the Defendant said that he wanted the Claimant to believe he was sorting it out. He thought he had access to funds. On Wednesday 8 October the Defendant's secretary called and spoke to Mr Helal and said: "He [the Defendant] said that he wanted me to ring to let you know he'd done the transfer.
Mr Helal asked whether she knew how much he did it for and she replied " ,". She said: "He did it around lunchtime, it would have been about 1, 2 o'clock. She said the Defendant said that he had given instructions to the bank to make the transfer. The , was coming in from Turkey. At paragraph 89 of his witness statement the Defendant said: "Around this time i. The whole situation was crazy, a mess and had spiralled completely out of control.
Accordingly, I intended to refinance some property within the UK, where I had equity. I considered that I could find the 1. At Mr Helal said: "I still haven't heard from him [the Defendant], this is the problem. I can't stress the urgency of this now. I mean when I spoke to you on Thursday wasn't it, sorry Wednesday, you passed on some information that he had sent money, erm we still haven't received that ".
He said that the money was abroad and that if he brought it into the UK he would have to be taxed, which he wasn't aware of. What I am doing now, I'm going to re-finance and that will leave me equity of about 1. Mr Helal advised the Defendant that the problem was the amount due was fluctuating but at present it was at 1.
He asked if the Defendant had equity of 1. Mr Helal asked about the , that had previously been referred to. The Defendant explained that that money was in a bank account in Turkey and that he was told that if he brought the money into the UK he would have to pay tax. The transcript of the conversation continues: "[Mr Helal] This is the problem, I mean as you say, I mean of course given the circumstances I've kind of allowed a certain amount of time because I didn't think you weren't going to be paying, I mean I just assumed you had complications in transferring the money.
Tell you what, let's discuss again on Friday, right. And if I don't get any, I'll let you have a letter from my bank, the money's coming. Obviously the culprit of this has been the RBS position hasn't it, continued to fall and now it's kind of going up and down but we have to think of it as an exposure point-of-view, you're not purely maintaining a margin here, you're running a deficit on your account which is a, I mean, if you think of it in theory, it's a hole in IG's balance sheet, it's not like we're just letting you open a position without funding it which would be perhaps another scenario, we may have a different view on that, as it's literally a running loss, you know, and if we did close the position at this point of time you would owe IG 1.
I can show you the letter from my bank manager and the e-mail about the re-finance. The Defendant thought he could have access to 1. In his evidence he said that he should have said ten days; a couple of days may have been an exaggeration. However he thought he could obtain the monies, but he said he misjudged the banking crisis. He said that at the time of the conversation on 13 October he hoped the share price would recover. He said: "I was desperate for the positions to stay open in the hope that the RBS bets might come good" Defendant's witness statement, para In answer to questions from Mr Mayall, the Defendant said that whenever he said that he would send money to the Claimant he meant it.
He said that he intended the Claimant to believe it. He said: "It is what I wanted them to believe we had a good relationship. In relation to the conversation on 7 October he said that he thought he had access to funds. I accept this evidence of the Defendant, which was not challenged.
He was advised the Defendant was out and the secretary at lunch. He left a message for the Defendant to return his call. The Defendant said: "I do not know why I did not call back but it is possible that I could not face the situation" Defendant's witness statement, para On 14 October, there having been no call from the Defendant and no funds received, after 12pm the Defendant's positions were closed and the debt was crystallized.
A summary of the margin calls on the Defendant from 15 September is as follows:. The Defendant was shown abbreviated accounts for Grindale. As at 31 December the net assets were stated to be just over The abbreviated accounts dated 31 December showed net assets for at a sum in excess of The Defendant said that in he and his wife had 35m assets in Grindale. However in October they were not liquid assets. He could not say now what his net asset value was in October He said that when Grindale went into administration it had debts owed to the bank in the sum of 63m.
The Defendant said that in the property market entered an extremely difficult time which was enormously stressful for him. The Chief Executive's report in the Claimant's Annual Report refers to the turmoil in the financial markets in , and notes: "During October we saw extreme volatility, the collapse in share price of many banking stocks and a severe market crash".
In addition the Defendant pointed out that this was also a time of year when there were a number of Jewish holidays which he observed: 30 September, 1 October, 9 October and 14 October At the outset of the hearing Mr Mayall and Mr Gourgey identified the following issues for determination: 1 a Is the Claimant able to argue that the effect of the Settlement Agreement, properly construed in the light of all the facts found at trial, precludes the Defendant from succeeding on the counterclaim?
Issue 1: Does the effect of the Settlement Agreement preclude the Defendant from succeeding on the counterclaim? Having regard to the judgment of the Court of Appeal and the transcript of the hearing before the court, Mr Mayall indicated at the outset of his closing submissions that he would no longer pursue this point. I have no doubt that he was correct to adopt that course. The Court of Appeal rejected what appeared to be Mr Mayall's submission that a claim which can operate as a set-off cannot also exist as a free-standing claim.
At paragraph 18 of his judgment Lewison LJ referred to Mr Mayall's skeleton argument, repeating the submission he had made to the judge to this effect: "It is not disputed that, had the Claimant been suing on the Customer Agreement, the Defendant would have been entitled to set off such damages as were awarded on his counterclaim whether the breach of contract or breach of duty.
At paragraph 21 of his judgment Lewison LJ noted that "in the course of oral submissions Mr Mayall began to develop an argument based on the construction of the Customer Agreement to the effect that the facts alleged by Mr Ehrentreu did not amount to a counterclaim at all.
The way the Claimant now puts this argument is set out in paragraph 19 of the Reply and Defence to Amended Counterclaim: "Further and in the alternative it is averred that the breaches of duty alleged but denied do not give rise to a counterclaim. They amount to no more than a denial that the Claimant is entitled to recover the difference between the Opening Level of the Bet and the Closing Level pursuant to Clause 8 of the Agreement.
Further information was given in relation to this pleading pursuant to a request by the Defendant. The material part of that information reads as follows: " iii By the Settlement Agreement the Defendant irrevocably acknowledged and agreed that the Debt i. In particular it is alleged that the bets should have been closed at an earlier time when the difference would have been less.
Mr Mayall submits that the Claimant has always acknowledged that, in the absence of the Settlement Agreement, the claim for breach of contract, if proved, would amount to an equitable set-off to a claim based upon the Customer Agreement. This was the position of the Defendant throughout. In the Court of Appeal Lewison LJ stated, "As I have said where equitable set-off applies all that is legally due is the net balance" para By the Settlement Agreement, however, the Defendant irrevocably acknowledged and agreed that "the Debt" i.
Mr Mayall submits that the counterclaim amounts to no more than a claim that the whole sum calculated in accordance with the Customer Agreement was not properly due and owing in its entirety. This is incompatible with the judgment of the Court of Appeal. Mr Mayall submits that what the court has to do is to look at the reality of what is being put forward on the Defendant's behalf. If the reality is that the claim amounts to a defence under the Customer Agreement or an equitable set-off that is incompatible with the terms of the Settlement Agreement.
In effect if what the Defendant is saying is that the money was not properly due and owing that is incompatible with the terms of the Settlement Agreement. The counterclaim is based on a breach of contractual duty and breach of statutory duty; as such it is a defence, submits Mr Mayall. What is pleaded is the denial of liability. I do not accept this submission.
Mr Mayall's argument appears to be based on Term 8 9 of the Customer Agreement see para 10 above. This allows the Claimant to recover from customers the difference between the Opening Level of the Bet and its Closing Level. The Claimant contends that because the Defendant is arguing his bets should have been closed at an earlier time than they in fact were, he is seeking to claim that the Claimant was not entitled to close out the bets when it actually did, and thus recover money on the basis of which the bets were in fact closed.
However the definition of "Closing Level" is not the level at which a Bet should be closed; "Closing Level" is defined in the Customer Agreement as "the level at which a Bet is closed" see para 16 above. I accept Mr Gourgey's submission that the Defendant's argument is not a denial of liability under the Customer Agreement, since such liability is triggered by the actual closing of the bets, not a situation when they should have been closed.
It is not in dispute that the Defendant failed to pay margin calls within five business days on numerous occasions during September and October It follows that the Claimant is prima facie in breach of Term 16 4 of the Customer Agreement. However that term is subject to the proviso in Term 16 5 see para 13 above.
It is common ground that in order for the Claimant to rely on the proviso in Term 16 5 it must establish on a balance of probabilities that it performed conscious exercises of discretion to keep the Defendant's bets open. Any such exercises of discretion had to be reasonable and made on the basis of the Claimant's assessment of the Defendant's financial circumstances.
The Defendant's primary position was that the margin call made on 3 September was not met by payment which is admitted , nor was there any evidence it was deemed met by an exercise of discretion under Term 14 9. However during the course of the hearing Mr Gourgey indicated that he would not pursue that submission. In relation to the margin call made on 3 September, before five full business days would elapse, on 8 September, as a result of movements in his favour, the Defendant came off margin.
Further, on 9 September the Defendant himself closed out the losing bets, and opened a further bet on RBS which was due to expire on 16 December see para 31 above. However there was, he submitted, no evidence that there was an exercise of discretion to keep the Defendant's bet open, as required by Term 16 5 , within five business days of the margin call of 15 September , or in respect of any other period of five business days starting with the margin calls made almost daily from 16 September There is an issue between the parties as to the calculation of five business days see para below.
However whether the demand for , made on 15 September was required to be paid by 23 September, as the Defendant contends, or 24 September on the Claimant's calculation, matters not for present purposes. The Claimant sent the Defendant statements of account on a daily basis. Mr Mayall accepts, on his calculation, that payment of , Mr Mayall accepts that there is no express evidence that the Claimant did exercise its discretion pursuant to Term 16 5 in respect of the margin calls before 7 October , but he invites the court to infer from the evidence that it did in fact do so.
He submits that it is implicit in the Claimant's request for payment, that if payment is not made it will have to close the Defendant out of the market. Such an inference, he submits, can properly be drawn in respect of each margin call in issue from all the evidence, in particular 1 the Claimant's knowledge of the Defendant's financial circumstances, 2 the fact that he had always made payments in the past when requested to do so, and 3 his repeated assurances between 16 September and 3 October that he had transferred or had arranged to transfer , to the Claimant's account see paras above.
Mr Gourgey cautions me against drawing any such inference in circumstances where no witnesses have been called on the Claimant's behalf to give evidence that the discretion was exercised. Mr Gourgey observes that the only witness to be called, Mr Waters, was not employed by the Claimant at the material time.
Mr Helal is still employed by the Claimant and could have been called to give evidence, but he did not. Mr Waters said that he did not speak to Mr Helal. Mr Gourgey submits that the evidence that has been adduced on the Claimant's behalf, namely the transcripts of telephone conversations between Mr Helal and the Defendant and the e-mail correspondence, for the whole period from 15 September to 13 October , is equally consistent with the Claimant merely pressing for payment of monies that were due and following up when payments were not made into its account when the Defendant said that transfers had been made.
As at the end of 23 September there was a margin call of ,odd, substantially in excess of the , that the Defendant had promised. The Claimant observes that the Defendant had had a recent history of daily defaults, as high as , on 19 September. By the time of closure of business on 6 October there was no promise to pay in excess of ,, with a margin call of ,, against a history of continued default.
There is, Mr Gourgey submits, no evidence that the Claimant considered whether to exercise its discretion under Term 16 5 to keep the bets open, having regard to the Defendant's financial circumstances. I note that during the telephone conversation at Whether any exercise of discretion under Term 16 5 could be taken by Mr Helal, or at least would require the involvement of his credit director is unclear.
However the fact is there is no evidence from Mr Helal or any other person who was concerned on the Claimant's behalf with the Defendant's account at the material time that there was any exercise of discretion to keep his bets open, having regard to his financial circumstances.
The knowledge of the Defendant's financial circumstances was limited. The only evidence relied upon by the Claimant is contained in the two letters from the Defendant's accountants of 8 November and 24 September see paras 24 and 25 above , which by September were at least 7 years out of date; and the information the Defendant provided in his application form see para 26 above.
Further, despite the size of the margin calls that fell to be met by 6 October, the communications between the Claimant and the Defendant before the conversation on 3 October had only concerned the transfer of a sum of , to the Claimant's account to cover the margin of , requested on 15 September. I consider that in all probability any concerns that the Claimant had in relation to the non-payment of the margins on the due dates was allayed by the knowledge that the Defendant had made payments in the past when requested to do so and his repeated assurances between 16 September and 3 October that he had transferred , from his accounts, and from 7 October by his assurances that he would be able in time to make the payments required see paras above.
I am not satisfied on the evidence that the Claimant at any time exercised its discretion under Term 16 5 of the Customer Agreement as it was required to do, and most certainly during the material period not before 7 October Accordingly I find that the Claimant was obliged to close out the Defendant's positions by reason of Terms 16 4 and 16 5 of the Customer Agreement, and that it failed to do so.
It is the Defendant's case that by leaving the Defendant's positions open and thereby allowing his net overall position to deteriorate the Claimant did not act in his best interests and therefore acted in breach of its obligation under COBS 2. See paragraph COBS 2. Before this date COB Rule 7. The purpose of COB 7. The guidance refers to Principle 3, which requires a firm to have adequate risk management systems, and also to Principle 6 which requires a firm to pay due regard to the interests of its customers and treat them fairly.
It is stated that COB 7. It also aims to ensure that a firm manages a private customer's exposure to contingent liabilities by diligently monitoring the firm's relevant provision of credit. Mr Gourgey submits that in deciding how to respond to the failure to meet margin calls in September the Claimant had to act in the best interests of the Defendant, and was under obligations to implement, maintain and follow credit risk policies.
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At the expense of the market maker, an arbitrageur bets on spreads from two different companies. Simply put, the trader buys low from one company and sells high in another. Whether the market increases or decreases does not dictate the amount of return. Failure to complete transactions smoothly can lead to significant losses for the arbitrageur.
Continually developing in sophistication with the advent of electronic markets, spread betting has successfully lowered the barriers to entry and created a vast and varied alternative marketplace. Arbitrage, in particular, lets investors exploit the difference in prices between two markets, specifically when two companies offer different spreads on identical assets.
The temptation and perils of being overleveraged continue to be a major pitfall in spread betting. However, the low capital outlay necessary, risk management tools available, and tax benefits make spread betting a compelling opportunity for speculators. Trading Instruments. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Origins of Spread Betting. Stock Market Trade vs Spread Bet.
Spread Betting Arbitrage. The Bottom Line. Key Takeaways Spread betting allows traders to bet on the direction of a financial market without actually owning the underlying security. Spread betting is sometimes promoted as a tax-free, commission-free activity that allows investors to speculate in both bull and bear markets, but this remains banned in the U.
Like stock trades, spread bet risks can be mitigated using stop loss and take profit orders. Despite its American roots, spread betting is illegal in the United States. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
Related Articles. Partner Links. Related Terms Spread Betting Definition Spread betting refers to speculating on the direction of a financial market without actually owning the underlying security. Forex FX Forex FX is the market where currencies are traded and is a portmanteau of "foreign" and "exchange. Betting on a Modest Drop: The Bear Put Spread A bear put spread is a bearish options strategy used to profit from a moderate decline in the price of an asset.
It involves the simultaneous purchase and sale of puts on the same asset at the same expiration date but at different strike prices, and it carries less risk than outright short-selling. Cash-And-Carry Trade Definition A cash-and-carry trade is an arbitrage strategy that exploits the mispricing between the underlying asset and its corresponding derivative.
Covered Interest Arbitrage Definition Covered interest arbitrage is a strategy where an investor uses a forward contract to hedge against exchange rate risk. Returns are typically small but it can prove effective. Bull Spread A bull spread is a bullish options strategy using either two puts or two calls with the same underlying asset and expiration.
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