Delta Index offer challenges stockbrokers

A financial markets spread-trading firm backed by former AIB chief executive Tom Mulcahy will take on stockbrokers today with a new product that will open up contracts for difference trading to its clients.

The new product from Delta Index will allow investors to hold their stock for an indefinite period through "rolling financial trades". Such contracts will operate in the same way as contracts for difference (CDFs) traded by traditional stockbrokers.

However, the company told The Irish Times at the weekend that rolling trades will not be liable for capital gains tax, duties or brokers' commission. "Through rolling trades we are offering the same facility as a CFD but at a substantially lower cost than a stockbroker," said Delta's managing director, Dermot O'Donoghue.

In addition, Delta said there will be no currency exposure on its rolling trades because all transactions are handled in euro. During the period when the euro appreciated against the dollar, holders of dollar contracts for difference lost many of their gains.

Most spread betting firms operate by requiring clients to limit their trades on individual stocks to a period of weeks or months.

Contracts for difference allow investors to take a position on a stock without paying for it outright. Instead, they pay a portion of the cost and borrow the difference, a process known as leveraging up.

While investors do not own the stock, they get the benefits and risks of share ownership for a fraction of the outlay. They can also take a position on the stock increasing or decreasing in price over a period of time, normally longer than the shorter timeframes involved in spread betting.

However, their losses can be a multiple of the original investment if the market moves in the opposite direction to the one they predicted. The rolling trades offered by Delta Index will confer the same benefits and risks.

Delta is an Irish-owned company. Mr O'Donoghue is a former head of treasury at AIB Group. It recently raised €1 million from a group of private investors which included Mr Mulcahy.