The spread betting industry was valued at just over £2 billion in 2016 and is predicted to hit £2.9 billion by next year.
With major brands taking measures to ensure retail clients are kept separate from corporate functions, many are looking to alternative investments to maintain their interest. One such product is convergence leverage vehicles (CLV).
What is Convergence Leverage Vehicle (CLV)?
Convergence leverage vehicles, or CLVs as they are commonly known, combine the liquidity of CFDs with the leverage of futures to create a product that is appealing to existing and new clients.
Created by Saxo Bank, the first CLV launched in September 2016 and follows the bank’s successful convergence product that combines CFDs and CFTC-regulated futures. Since its inception, the product has been heavily promoted through the distribution of £350,000 of free cash as part of a sweepstake promotion. However, very limited amounts of the product are actually available for sale to individuals.
How Does It Work?
When you open a trading account with Saxo you are given a choice of leverage. The minimum leverage available is 1:200 which equates to £10,000 of your money being placed on £100,000 of synthetic shares.
By combining CFDs and futures, CLV allows traders to speculate on the direction of a stock or commodity pair (e.g., USD/JPY or ETH/BTC) without having to worry about the fluctuations that can come with direct ownership of an asset. For instance, with USD/JPY you can short the dollar against the yen, allowing you to profit from rising prices or long the dollar, offering you a leveraged play on falling prices.
Further to the plus side, with CFDs and futures you already have the foundations of a portfolio that you can take direct ownership of. You can choose to combine different instruments (e.g., long oil and short gold) to create your ideal portfolio, making the process much simpler. Alternatively, you can keep your funds in cash and take the inflow and outflow from your trading account as you see fit.
Why Should You Consider It?
For many years now, the major investment banks, such as Goldman Sachs and Morgan Stanley, have been offering their retail clients access to the leveraged trading platform, TradeStation. However, with many traditional bank products potentially impacted by increased regulation, it is no surprise that many investment banks are looking to create their own CLV. Additionally, as previously mentioned, very limited amounts of the product are actually available for sale to individuals, meaning that Saxo is in a unique position to promote the product and drive sign-ups.
Due to the limited availability of the product, the marketing push from Saxo has been extensive. The bank will be distributing £350,000 of free cash to retail customers as part of a competition to find the best retail customer. However, customers will only be able to participate in the promotion if they open a new trading account with Saxo.
The Bottom Line
While the product is a relatively new entrant to the financial markets, Saxo has a lot to offer those seeking alternative investments. Not only do they already have the infrastructure in place to support the product, but they are also able to offer both leverage and cash prizes which will encourage more and more people to try the product.