Ireland a costly gamble for online trader

30 Jan 2003

David Butler (pictured), chairman of a new online spread trading operation called Global Trader, doesn’t mince his words when giving his opinion of Ireland as a place for doing business. “We would love to do it here but why am I going to pay four times the price? If we were trying to do everything from Ireland we simply wouldn’t exist.”

Having worked in London as a trader for seven years followed by three years in South Africa running a small investment bank, Butler has already packed a lot of experience into his thirty years.

His latest venture, Global Trader, was launched in South Africa in March 2001 after he spotted a gap in the market for an online spread trading service to compete with conventional stockbrokers.

“Online trading with a difference,” is how Butler describes the service. “You don’t buy or sell the product itself, you buy what’s known as a contract for difference (CFD),” he explains. “This contract exactly mirrors the movement of the share. You don’t pay any stamp duty, saving 1pc and you’re putting down 20pc of the capital. It’s not for someone who’s building up a pension fund; it’s for someone who thinks Bank of Ireland is going to have a rough three months.”

The service has now around 3,500 users conducting between 1,000 and 1,500 trades a day. Butler attributes the instant popularity of the service to its cost advantages over full-service stockbroking houses. “It’s 80pc cheaper than trading through your broker,” he claims. “We do more business than all of the stockbrokers put together and the business is highly profitable.”

Using cash generated in South Africa, Butler decided to expand internationally. Last year, the company chose Dublin as its international headquarters covering the UK and Ireland markets. Another office has been established in Toronto and the company’s looking to open one in the Far East as well. Global Trader now employs 24 people globally, including eight in Dublin and 10 in South Africa. So far, according to Butler, the venture has raised over €3m from a mix of Irish and London-based investors.

As Butler’s opening comment attests, Dublin was not selected as the international hub without some reservations – principally cost and the lack of start-up grants from state agencies.
“We approached Enterprise Ireland and didn’t get a penny. They felt the product we were offering was too speculative and that the business model was not robust enough. I was quite disappointed with the state support. I’ll accept that it was a very speculative business venture but you’ve got to look at the calibre of people you’re dealing with,” he remarks.

“However, there were several pluses,” he adds. “Staff costs are cheaper here than the UK, it’s English speaking, there’s an Anglo-Saxon way of doing business and a well educated workforce.”

To keep costs down, the company has located in Clonshaugh industrial estate in Coolock rather than the plush environs of the IFSC or another city centre location and all the programming and back office processing continues to be in South Africa. Usually among its competitors, the company developed and owns its own trading platform.

The internet is providing the perfect vehicle for taking the business global, Butler maintains.

“The internet is just another business channel but it can be a phenomenally scalable one. We have a very low-cost infrastructure in South Africa and because of the internet we can roll out in the UK, which is a very high-cost infrastructure. Our competitors in the UK have costs of five or eight times higher than ours.”

Starting a web-based venture in the depths of a downturn is not everyone’s idea of a solid business proposition. While Butler is realistic about the challenges facing the economy he feels that, as a fast-growing internet company, there are opportunities aplenty for Global Trader regardless of the economic climate.

“I think small profitable tech companies are the ones that will do well. They need to be profitable or at least have access to funding, which is difficult enough in this environment. If they are cash-flow positive, it is the small versatile guys who can really cut the legs from under larger ones. Companies requiring funding to stay in business are going to be crucified this year because the funds just aren’t there.”

Confidence they say is the key to the financial markets. Butler is certainly confident that his online trading baby will be able to grab a significant share of the spread trading industry, which was worth €150m last year and is growing at 60pc annually.