Discretionary

The Twowaymarkets UK Select (TUS) Frequently asked questions

 

• Who is behind UK Select?

UK Select is a product of Twowaymarkets Limited, a firm authorised and regulated by the Financial Services Authority. It is managed by Thierry Laduguie. Thierry has many years experience in the stock market as a successful portfolio manager, technical strategist, writer and researcher. He is a member of the Society of Technical Analysts and holds the Investment Management Certificate. He has recently been invited to speak on Reuters TV, giving his analysis and views on the markets and his research was nominated for “Best Specialist Research” at the 2009 The Technical Analyst awards.

• What markets do you trade?

We trade FTSE 100 share CFDs, nothing else.

We are often asked whether we offer an account which trades Forex. Our response is that we trade what we know. It is an un-correlated investment and as such it matters not what we trade, as long as it meets with your investment objectives.

• Why is your minimum £20k

We have considered a higher sum, but feel £20,000 is a sensible figure for many investors.  We do not accept lower initial deposits because of the low trade size we place. We must consider minimum commission charges imposed by CFD brokers. When placing trades under £10,000 the execution costs would have to rise, impairing the profitability of the product. This is something we will not accept.

• Why do you trade CFDs rather than Spread-Betting?

There are 3 key reasons here:

1. Trade Execution – We trade online directly into the market, often working bids and offer orders for efficiency. This cannot be done with spread betting.

2. Aggregation – We execute trades on an aggregated basis, allocating the trade to our clients after the trade has been placed. This aggregation and allocation functionality is only available with a few CFD brokers and even fewer spread betting companies. We must trade in this manner to ensure we treat all our customers fairly.

3. Tax – We are not tax advisors, but one could argue that a professionally managed spread betting account could be seen as a taxable event by the Inland Revenue. In which case, any potential benefit a spread betting account would present would be negated

• Why do you trade CFDs rather than shares?

There are 3 main reasons:

1. Short Position – With shares, one cannot easily take short positions which are an essential part of the strategy.

2. Leverage – A degree of leverage is required within the account in order to make above average returns.

3. Costs – Stamp duty is imposed on buying shares at 0.5%. Such a cost would impair profitability dramatically

• Why would I invest with you rather than an advisory service, where I get to execute the trades?

We are often compared to advisory CFD brokers for obvious reasons. We feel we offer a completely different product for a number of reasons:

1. In wanting an advisory account you are acknowledging you have neither the time nor expertise to manage your trading account efficiently. A managed account simply removes the day to day approval of each trade enabling you to concentrate on your day to day obligations, whilst we concentrate on making you profits.

2. Efficiency - With an advisory service, all trades must be approved by the client before they are placed. In a fast moving market, if an advisory broker is looking after a large number of clients the share price may have moved considerably by the time he comes to call you with the opportunity. Also, if you are a busy person, you may miss the call and miss the trade entirely, which can be even more costly when it is to close a position. This is time consuming and inefficient for both you and the broker and means you often miss trades or enter at unfavourable prices. Our strategy is based on managing a portfolio of long and short holdings. The timing of execution is crucial. In managing the account, we can ensure timing of each trade is correct. Our strategy is only viable if we can place all trades and the portfolio would not function efficiently if we miss a trade because we cannot get your approval.

3. Risk - For a £20,000 account, we will open positions of no more that £10,000 per share. Many advisory brokers will recommend positions far in excess of this, sometimes over 3 times the account value, in this case £60,000. A position of this size offers much risk to the client’s account. If the stop loss is 3%, then the client is risking £1,800 on one trade, representing 9% of the account. This is too much especially when 3% move can occur in a matter of minutes. The real danger is a share “gapping” overnight. If a share gaps down 15%, a long position of this magnitude would result in a running loss of £9,000 or 45% of the account. We will not engage in this much risk for our clients. Remember, we charge our fee only if you make profits. Therefore our incentive is to control and mitigate risk, not embrace it unnecessarily.

4. Charges - How is an advisory broker remunerated? The simple answer is commission, typically charging 0.3% per side on CFD transactions. The reality is, the advisory broker will be paid whether you make a profit or not. We charge a very low commission of just 0.15%. Our incentive is to make you profit. We charge fees based on results, only charging if your account makes money. This ensures we are always acting in the interest of performance not in commission generation. In the above example, an advisory broker recommending a £60,000 trade would charge commission of £180 to buy and the same to close. Your trade must make £360 before you have even covered your costs! Our commission charge would be just £15 each side.

• Are my trades executed personally for my account or a number of others at the same time?

We are obviously trading for a number of clients. We buy or sell the aggregate quantity of CFDs when trading. This quantity is then split and allocated seamlessly by Saxo Bank into the clients’ accounts in the appropriate quantity. This ensures fairness and that trades are executed in a timely fashion. In our opinion, our time should be spent on research and analysis, not executing the same trade on each account individually, which is time consuming and costly.

• How are you incentivised to make me money?

Our major incentive is to make you money. We do not charge a management fee like most investment managers. Our fee is charged ONLY if your account makes a profit. We charge 25% of new profits on your account. This ensures that our objective is to make a return for you rather than generating commission. In fact, to that end, we have already cut our commission rate twice in 2009 to maximise profits.

• How long has the strategy been around?

Following extensive testing, we have been recording and trading since March 2006.

• Can I make profits in a bear or falling market?

This is an un-correlated investment. Returns are neither dependant on rising nor falling markets. We simply require the market to fluctuate in a decisive manner.

• What is the performance?

For details on performance, please call us or register your details here, asking for the latest figures.

• Do you compound the trade size?

We will not compound the trade size on your account unless we receive authority from you in writing. Otherwise, we will trade you account in the size deposited. i.e. if you send £50,000, we will execute trades no more than £25,000 regardless of how much profit you may have accrued.

• Can I view the trades online?

Saxo Bank will provide all clients with a username and password, enabling them to login to the back office portal to monitor trades and live account performance. From here, clients can also download statements and account activity if required.

• Do I receive a statement?

Saxo Bank do not send account statements, but access to the account can be gained by 24 hour online access to the online platform and back office system to assess and monitor performance. From there, statements can be viewed and downloaded.

• Can I trade the account?

If you would like to trade CFDs, we can arrange a second account for you, but we do ask you keep this account independent from the managed account.

• Can I withdraw funds / profits at any time?

You are not investing in a fund, so the account you open is an account in your own name. As such, there is no withdrawal penalty or early redemption charge. If you are to withdraw funds from your account, we ask that you keep Twowaymarkets informed so there are no weighting or margining issues with the account.

It is simplest to withdraw profits on a quarterly basis after any incentive fee has been paid. Some clients prefer to compound their returns by increasing the trade size as the account increases. This can easily be done, but only at the client’s request by contacting the dealers.

• Where are my funds held?

We do not hold client funds. Your funds are held with an executing broker, in this case Saxo Bank (www.saxobank.co.uk). Your funds are held in a non-segregated account but are party to the Danish Guarantee Fund for Depositors and Investors. Until September 2010 all funds are party to the Danish Government Guarantee Scheme, in which funds are guaranteed in their entirety. Please click this link for more details - http://www2.saxobank.com/en/about-us/saxo-bank/pages/investor-fund-guarantee.aspx.  Please click here to view a copy of the Saxo Bank 2008 Annual Report.

• Are my funds segregated?

No, but until September 2010 all funds are party to the Danish Government Guarantee Scheme, in which funds are guaranteed in their entirety. Please click this link for more details - http://www2.saxobank.com/en/about-us/saxo-bank/pages/investor-fund-guarantee.aspx.  Please click here to view a copy of the Saxo Bank 2008 Annual Report.

• What happens if Saxo Bank goes bust?

In the unlikely event that Saxo Bank does go bust, your funds would be dealt with by the Danish Guarantee Fund. Further information can be found here - http://www2.saxobank.com/en/about-us/saxo-bank/pages/investor-fund-guarantee.aspx. 

• What happens if Twowaymarkets goes bust?

Twowaymarkets are the investment managers, and do not hold clients funds. Therefore your funds will not be at risk from Twowaymarkets Limited ceasing to trade. We would however cease to manage your account.

• What’s the biggest loss ever taken?

To date, be worst performance in any month is 13.5% and such moves are to be expected.

• Can I lose more than my initial investment?

We cannot say no, but this is unlikely. Obviously the account is at risk from poor performance in two ways.
Firstly from gradual losses on the account - We have a clause in the managed agreement that states if the account falls 30% from the initial deposit we will cease trading for the account and contact you to discuss further. Of course, you have the online access to your account to monitor performance.
Secondly, and more importantly, we must consider shocks in the market. The portfolio will always have a balance of long and short positions. It is unlikely that we will be weighted greater than 75% long or short in the portfolio. A weighting of 75% long would mean we have £15,000 (£20,000 x 75%) long exposure. Given certain assumptions, in the unlikely scenario that the market were to open down 10% we could expect the account to fall £1500 as a result, which is 7.5%. If our analysis is temporarily wrong, this balance in the portfolio ensures that the account has a degree of protection from stock market shocks. If you need this explaining in more detail, please call us on +44(0)207 0991138.

• Can these investments be included in an ISA or SIPP?

CFDs are illegal within an ISA. One can however trade CFDs within one’s SIPP. There have been many changes in the industry recently with many CFD brokers no longer offering this form of investment. However, we are exploring this for our clients, but due to the complicated nature, this may not be possible.

• Will profits be taxed?

We are not tax advisors. However, since the account trades CFDs, your account may be liable to Capital Gains Tax. There is an annual tax free allowance which for 2008-09 is £9,600 before any tax is payable. Capital Gains thereafter are charged at a rate of 18%. Please click here for more details (http://www.hmrc.gov.uk/rates/cgt.htm). If in any doubt, please contact your tax advisor.

• Are there any eligibility criteria for investors?

We will only accept an investment from a client with a certain level of experience and knowledge in trading the financial markets. Please contact us for more details if you are unsure of your eligibility.

• Are there any legislative changes on the horizon that TWM is aware of that may limit TWM's ability to execute the types of trade currently used?

Not that we know of. In September 2008 a temporary limit was imposed on shorting financial shares. This included shares within the banking and life assurance sectors. Ironically, September and October were two of our most profitable months. A full ban on shorting would be difficult, but we don’t think this is likely.