How safe are CFD providers from going bankrupt?

[Kauri]

Be carefull.... be very very carefull.... make sure you are not over-extended... anywhere...

:samurai:

UK Telegraph
MF Global has informed clients that the margin on CFDs (Contract For Differences) for certain is up on stocks from 25% to 90%. The clients have been given until this morning to put up the extra cash or close positions. The article states that traders fear the move could result in millions of shares being dumped on the market today. FTSE 250 stocks and stocks popular with small investors are expected to be hardest hit, with observers warning that other CFD providers - including IG Index and City Index - are also looking at increasing margins....

Cheers
............Kauri

 

[chops_a_must]

Be carefull.... be very very carefull.... make sure you are not over-extended... anywhere...

:samurai:

UK Telegraph
MF Global has informed clients that the margin on CFDs (Contract For Differences) for certain is up on stocks from 25% to 90%. The clients have been given until this morning to put up the extra cash or close positions. The article states that traders fear the move could result in millions of shares being dumped on the market today. FTSE 250 stocks and stocks popular with small investors are expected to be hardest hit, with observers warning that other CFD providers - including IG Index and City Index - are also looking at increasing margins....

Cheers
............Kauri

I could/ can never work out if you actually traded cfd's, or the actual futures.

And because ordinary words can't get near the seriousness of all this:

Rose, ability. There is no roseability
Rose, ability. There is no roseability

You’ve got off with too much now
You’re getting off with too much now
Stop looking through scrapbooks and photograph albums
Because I know
They don’t teach you what you don’t already know
You’ve always been, dissatisfied

Gertrude Stein said "that’s enough"
(I know that that’s not enough now)

 

[Timmy]

I contacted MF Global with intention to open a CFD account.
Now I have already received a couple of calls from their rep who appears to be very, very eager to help me open an account. He's basically pushing me.
Possible signs of trouble? Opinions?

He is a broker, that's what they do.

 

[So_Cynical]

As i said months ago...the MM, CFD providers are just fancy "Bookies"

 

[Markcoinoz]

This is a slight side issue.

More to do with Mortgages.

However, what it is highlighting is the amount debt in both creditcards and margin loans.

In a recent 4 Corners Program called Debtland there was mention of the amount of Margin Lending that is taking place in comparison to our National Debt.

Rather staggering. 3.5% equal to creditcard debt.

There was no mention of the CFD market.

Very interesting program.

The problem that i think will continue to evolve is the compounded plastic debt on both Margin Loans and CFD's.

From what i have read if there is pressure in the overall level of debt, it will eventually have a ripple effect down to the CFD's.

Stands to reason if people are using borrowed funds for CFD's and Margin Lending the Mortgage Crisis looks like it has a long way to run and eventually funds will start to dry up with all types of leverages.

http://www.abc.net.au/4corners/content/2008/s2201740.htm

You can watch the program or read part of the transcript.

Cheers markcoinoz

 

[Markcoinoz]

This just further highlights my concerns of the CFD market.

If you operate CFD's i would suggest you read the fine print.

http://www.theaustralian.news.com.au/story/0,25197,23570606-643,00.html

Here is a snippet from the article.

The CFD industry estimates that more than $400 billion of CFD trades are carried out each year in Australia, representing more than 15 per cent of trades on the equities market. Most are trading outside the Australian Securities Exchange, in a poorly regulated over-the-counter market. The way it works is the CFD providers hedge their bets by either buying stock in the physical market or borrowing stock provided by superannuation funds.

Tom Elliott, managing director of Hedge fund group MM&E Capital, estimates that of the $200 billion stock that is available to be lent out, 10 per cent is carried out by the CFD industry, while hedge funds represent about 30 per cent.

According to the latest Australian Financial Markets Association data, the OTC market turned over $81.4 trillion last year, compared with $38.9 trillion for the total exchange-traded markets, which includes the ASX and the Sydney Futures Exchange, also owned by the ASX.

The country's biggest CFD provider, CMC markets, has in its product disclosure statement a clause: "Should there be a deficit in the segregated trust accounts and in the unlikely event CMC Markets becomes insolvent before it topped up the segregated trust account in deficit, you will be an unsecured creditor in relation to the balance of the moneys owing to you."

The second-biggest CFD provider, IG Markets, has in its product disclosure document: "Your money may be co-mingled into one or more separate accounts with our other customers' money; we are obliged to pay any money due to you in relation to dealings in CFDs into a separate account; the obligations to you under the Customer Agreement and the CFDs are unsecured obligations, meaning that you are an unsecured creditor of ours."

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Well worth reading the entire article.

Cheers markcoinoz

 

[Trembling Hand]

Markcoinoz other than the product disclosure document info that article is rubbish. The CFD MM model is quite strong. Where are their risk coming from? Its not an adverse market movement as they will benefit from such a move its from customers winning excessively which is diminished by their hedging.