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CFD's, Collapse of MF Global
arty
post Posted: Nov 7 2011, 12:08 PM
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email from CMC this morning:
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Dear Customer As you may be aware, last week saw a number of press articles referring to recent events in the financial services market and the issue of client money.

I would like to take this opportunity to reassure you that as a customer of CMC Markets all of your funds are held in a segregated trust account with a top-tier Australian bank, established, maintained and operated in accordance with Australian Client Money Rules. This fully segregated model means all client moneys, including client margins, are 100% segregated.

We do not use client money to hedge our positions or to meet the trading obligations of other customers. This exceeds current regulatory requirements under the Australian Client Money Rules. This is one of the factors that separates us from smaller providers and offers you financial security. As a result, you can rest assured that all client funds are completely secure.

CMC Markets is regulated in Australia by ASIC and complies with Australian laws. As a CMC Markets' customer you're partnering with a stable, secure and trustworthy financial services company and one of the leading CFD providers in the world.

The fact that we now have a fully segregated client money model, our global operation is in a strong financial position and that we have robust internal risk management and compliance systems, means I can very confidently say to our Australian and New Zealand customers that in regards to counterparty risk, you have never been more safe and secure.

Of course, that still leaves traders vulnerable to do stupid things, like over-extending their margin limit; staying too long in a losing trade; averaging down instead of reversing...

As I said before: You have to know what you're doing, and I'm sure nearly every participant in this discussion does.



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I trade daily, but I am not a licensed adviser. Whether you find my ideas reasonable or not: The only person responsible for your actions is YOU.
I follow two rules: (1) There are no sacred truths. All assumptions must be critically examined. Arguments from authority are worthless. (2) Whatever is inconsistent with observed facts must be discarded or revised. We must understand the Market as it is and not confuse how it is with how we wish it to be. (inspired by Carl Sagan)
 
flower
post Posted: Nov 7 2011, 11:53 AM
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In Reply To: early birds's post @ Nov 7 2011, 11:49 AM

just check the way how you ramping your yellow stuff, before you come here to accuse CFD users! weirdsmiley.gif

What am I accusing CFD users of? Settle down.



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Combining Fundamental comments with Fundamental charts.
 
early birds
post Posted: Nov 7 2011, 11:49 AM
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In Reply To: flower's post @ Nov 7 2011, 11:25 AM

As with all things there are two sides to a story, we only read the plusses and to mention the minuses is verboten
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hey flower
just check the way how you ramping your yellow stuff, before you come here to accuse CFD users! weirdsmiley.gif

yes, CFD dose involve high risk. it's just a one out of millions leverage products in today's financial system.
negative gearing from housing market, credit card , eg...... plenty out there.
it is come down to------ HOW YOU MANAGE THE RISK ---- full stop!




Said 'Thanks' for this post: mpl  arty  
 
flower
post Posted: Nov 7 2011, 11:25 AM
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In Reply To: wolverine's post @ Nov 6 2011, 09:55 PM

CFD's are seen by many as an easy way to make money, leverage has a habit of lighting up peoples greed. History is littered with losses from margin loans and as Arty mentioned Sonray etc.

I also agree with Arty we have a more sophisticated group of people here (and with much higher skill levels than I have at short term trading). It seems many have done their DD on the CFD providers although how you have waded through the pages of fine print I have no idea. laugh.gif

Wolver---everybody seems to agree the CFD's are risky, and obviously SS is blessed with the higher end of the intelligence level insofar as CFD trading is concerned, but my point is and always has been that since this higher end intelligence is not resident with all of us, when one who is not so blessed points out the risks involved all hell falls on his shoulders.

I see no shame in admitting in not being that intelligent, but what the "doubters" are never told is all about the punters who get totally cleaned out. Now why in the name of all thats holy would one want to stick a potential noose around ones neck if one was not comfortable with trading CFD's?

It's difficult enough to get a return on trading capital year in year out of 30% without taking risks with things one knows nothing about, nor understands. Ive got better things to do with my time than trying to educate myself into taking very high risks, incedentally it would be interesting to run a poll of SS members to see how many ACTUALLY trade CFD's, judging by the very few actual trades posted using CFD's it seems to be minimal.

As with all things there are two sides to a story, we only read the plusses and to mention the minuses is verboten.








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Combining Fundamental comments with Fundamental charts.
 
onefineday
post Posted: Nov 7 2011, 10:48 AM
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In Reply To: mistagear's post @ Nov 6 2011, 08:15 PM

Hi Mista
More fine print ; From what I've read in the media , they did segregate their client's money into a different bank account , BUT they then "borrowed" from that segregated account for their own purposes...

I hope anyone with MF gets all their money back.






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The market can stay irrational longer than you can stay solvent.
 
arty
post Posted: Nov 6 2011, 10:34 PM
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In Reply To: wolverine's post @ Nov 6 2011, 09:55 PM

Hi Wolver,

yes, I did DD and waded through the fine print before taking the first baby step into CFD Land.
In case it's of interest to anyone, this is the summary I wrote in plain English on 9/02/2003:
QUOTE
Trading conditions - Terms of Business

Each open contract is called a "Spot"

customer must know what they're doing (fair enough)
customer must monitor the value of their underlying security 24 hours
CMC can close all or parts of a contract at any time - day or night
Dividends are paid at 90% of gross dividend announced (excluding franking) (both ways)

Conclusion: safest bet is to trade Oz stocks only and only Intraday.
worst-case scenario, if held overnight, could require the full purchase price.

Example: ALL from 6/2 to 7/2, lost 50% over night. If I was long $10K, I would owe $9,500.
Next day, my $500 plus the value of holdings (dropped to $5,000) would leave a shortfall of $4,500.
That would be the value required in the account.

Conversely, if a short position turns nasty (goes up), I would need increased margin cover.
In addition, nothing stops the Lender (CMC most likely) to close me out at any time to take profit.

Accounts are unsecured.

Credit balances can be withdrawn - unless open positions could leave an exposure to higher margins.
That probably implies that we still need to maintain a balance that covers the value of all longs.
Even more if short.

Conclusion: Strictest stop-loss obedience!




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I trade daily, but I am not a licensed adviser. Whether you find my ideas reasonable or not: The only person responsible for your actions is YOU.
I follow two rules: (1) There are no sacred truths. All assumptions must be critically examined. Arguments from authority are worthless. (2) Whatever is inconsistent with observed facts must be discarded or revised. We must understand the Market as it is and not confuse how it is with how we wish it to be. (inspired by Carl Sagan)
 


wolverine
post Posted: Nov 6 2011, 09:55 PM
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I have used ETO's for years which is more like swimming with sharks, to control some of my risks I have mostly limited myself to covered calls and a few fairly basic spreads.

CFD's are seen by many as an easy way to make money, leverage has a habit of lighting up peoples greed. History is littered with losses from margin loans and as Arty mentioned Sonray etc.

I also agree with Arty we have a more sophisticated group of people here (and with much higher skill levels than I have at short term trading). It seems many have done their DD on the CFD providers although how you have waded through the pages of fine print I have no idea. laugh.gif

The catch with MF global Australian clients is that they may have mixed up their money and you can do all the DD you want, sometimes things are not working the way they are supposed to work.

We are all working in a bit of a brave new world with trading computers residing with bourse computers contributing to large market swings?? Exploring the potential downside of this apparent collapse of a CFD provider isn't CFD bashing but I still find myself a little uncomfortable with them. (also feel the same way about cigarettes and exotics in gambling).



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I AM THE OTHER WHITE MEAT
 
arty
post Posted: Nov 6 2011, 09:27 PM
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In Reply To: mistagear's post @ Nov 6 2011, 08:15 PM

Thanks for bringing us back to the facts, Mista smile.gif
QUOTE
This thread seems to be a bashing exercise at CFD's

While Wolverine's comment might be taken as critical, at least he knows what he's talking about. Not everybody does, and most of those retail punters, who were led to think there's an easy way to riches, would have learned by now that it takes knowledge and discipline to survive. For that reason, I wouldn't necessarily agree with Wolver that there's more bad news to come - most SS members seem to be a pretty smart lot graduated.gif And the evidently small volume of MFG trades leads me to believe that retailers in general have become far more conscious of "the fine print". Maybe Storm, Sonray & co have been more educational than is generally accepted wisdom?



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I trade daily, but I am not a licensed adviser. Whether you find my ideas reasonable or not: The only person responsible for your actions is YOU.
I follow two rules: (1) There are no sacred truths. All assumptions must be critically examined. Arguments from authority are worthless. (2) Whatever is inconsistent with observed facts must be discarded or revised. We must understand the Market as it is and not confuse how it is with how we wish it to be. (inspired by Carl Sagan)
 
mistagear
post Posted: Nov 6 2011, 08:15 PM
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In Reply To: mrbear's post @ Nov 6 2011, 06:28 PM

Lets sort something out here.

MF Global went under because they used their own money to buy Spanish and Italian bonds. Value has dropped substantially which forced MF G to report a huge loss. This in turn created a lack of confidence by investors, clients and rating agencies.

With more capital and less borrowing, MF Global would still be in business, biding its time and waiting for the European Central Bank to rescue Italy and Spain. (The company is also alleged to have mixed client money with the firm's a separate, very serious problem.

Clients funds of MFG in Aus are involved because MFG did not segregate clients funds from the Company's.

The CFD provider I use does segregate client funds, I'm not aware if CMC do. If not, any funds in Mr Bears account may be at risk even though no trades are current.

This thread seems to be a bashing exercise at CFD's whereas the problem has been caused by something entirely different, and the problem for MFG's Aus clients is they did not understand the risk in dealing with a company who did not segregate client's monies.



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Said 'Thanks' for this post: arty  
 
mrbear
post Posted: Nov 6 2011, 06:28 PM
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In Reply To: mpl's post @ Nov 6 2011, 05:01 PM

I use comsec and cmc and no one i know uses global,the more this happens though tends to make you run for the covers of a solid reputable firm.

I myself at the moment am not trading any leveraged product nor anything that is not rock solid and pay a big div.

The market is so jumpy and could easily plunge 20% in a heartbeat and i am not willing to have serious capital in the market that will not give me a good return in divs should that happen,cheers mrbear

 
 


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