Surprise, surprise! CMC Markets profit from customer losses

[Pairs Trader]

http://www.smh.com.au/business/legal-avenue-possible-for-risky-trades-buyers-20100830-147bd.html

Disgusting, I always knew this is how these market maker bucket shops did it, they classify their clients into groups between those who make money, those who lose a little and those who lose a lot, then they don't hedge their positions for the losing traders accounts, therefore profiting from client losses, leading to a direct and un-ethical conflict of interest. No wonder ASIC is barking up their **** lately.

Market maker CFD providers don't care whether you make money, they actually profit from your losses, all they care about is your commission dollars and the wide/manipulated spreads they charge you. Don't be fooled by their cheap window dressing and baiting tactics.

If you don't know already, please only trade directly onto the exchange via sponsored access or a DMA provider, that is, if your serious about trading and not just having a ''punt''.

 

[So_Cynical]

These guys are bookies pure and simple...still surprises me how people post on this forum with really no idea how they work.

 

[Garpal Gumnut]

http://www.smh.com.au/business/legal-avenue-possible-for-risky-trades-buyers-20100830-147bd.html

Disgusting, I always knew this is how these market maker bucket shops did it, they classify their clients into groups between those who make money, those who lose a little and those who lose a lot, then they don't hedge their positions for the losing traders accounts, therefore profiting from client losses, leading to a direct and un-ethical conflict of interest. No wonder ASIC is barking up their **** lately.

Market maker CFD providers don't care whether you make money, they actually profit from your losses, all they care about is your commission dollars and the wide/manipulated spreads they charge you. Don't be fooled by their cheap window dressing and baiting tactics.

If you don't know already, please only trade directly onto the exchange via sponsored access or a DMA provider, that is, if your serious about trading and not just having a ''punt''.

Australia's second largest provider, CMC Markets, acted to profit from customer losses by profiling its customers and placing them into A-book, B-book and C-book categories. A CMC document titled Dealing Desk Manual said the C-book was ''the classification for clients with a past history of excessive loss on their account and the propensity to churn their Australian equity only positions''.

BusinessDay has established CMC did not hedge, or lay-off risk from customer losses on the C-book, meaning CMC profited from these customers' losses.

CMC has said it no longer profiles customers, ending the practice in June last year. It continues to profit from customer losses from an unhedged portion of its customers' trades.

Now why doesn't this surprise me. I was bored one day and went to one of their seminars.

Sales pitch 101 is my memory of it.

gg

 

[skc]

Personally I think that is quite a smart way of doing it from a business point of view. They decided that they won't hedge everything so customer profiling can be effective means of determining who to hedge.

It's the customers' fault that they lost money in their trade - they would still make a loss regardless of whether CMC hedged their trade or not.

Anyone silly enough to trade with CMC would probably lose money so there is no need to hedge any of it...

 

[buysellmestuffed]

I was having a pretty good punt last 6 months and every time i put an order in wasn't small i would get a couple of orders in front or under me , now i like to get in and out quick so this was annoying .

I watched it for a couple months then decided to put in some randoms , only i exited them before i bought or sold

Funny thing my good run turned pear shape and so did the parcels around mine , I'm on the up again but now there wary : there orders are smaller .

I don't like there website or order structure , i want a site that allows it's customers to benefit . Seems a lot of orders are filled without being in the Que .

 

[skyQuake]

Wonder if they hedged TH's trades?

By the looks of things with they probably didnt :

 

[awg]

I am a bit puzzled that form of profiling is a surprise to anyone, or even considered unethical.

They are a business maximising their profit..they dont need to waste money on hedging against losers..it doesnt make any sense to do so.

Of far more concern to me would be manipulating the spreads, stop loss points, order queue, etc etc, that some allege occur.

You would expect there must be enough dissaffected ex-employees to blow the whistle

 

[Alpha_Bet]

I didn't know whether to laugh or cry when Lateline Business on the National Broadcaster would cross to the London office of CMC Markets for an update/preview of the European/US markets.

 

[Pairs Trader]

Personally I think that is quite a smart way of doing it from a business point of view. They decided that they won't hedge everything so customer profiling can be effective means of determining who to hedge.

It's the customers' fault that they lost money in their trade - they would still make a loss regardless of whether CMC hedged their trade or not.

Anyone silly enough to trade with CMC would probably lose money so there is no need to hedge any of it...

I agree skc from a business perspective its smart, and agree its the client who pushes the buttons. The issue is that this morphs the business model into a firm vs client structure, and any funny things happening with the spread might ''co-incidentally'' benefit the firm, and then profitable traders become an issue, just goes against the grain of what the client is trying to achieve, its like a car yard selling dodgy cars and then profiting from the buyer if he is involved in a car crash and dies suddenly fixing those loose brakes doesn't seem to urgent...

They're no different from the bucket shops back in the Jesse Livermore days.

 

[skc]

I agree skc from a business perspective its smart, and agree its the client who pushes the buttons. The issue is that this morphs the business model into a firm vs client structure, and any funny things happening with the spread might ''co-incidentally'' benefit the firm, and then profitable traders become an issue, just goes against the grain of what the client is trying to achieve, its like a car yard selling dodgy cars and then profiting from the buyer if he is involved in a car crash and dies suddenly fixing those loose brakes doesn't seem to urgent...

They're no different from the bucket shops back in the Jesse Livermore days.

All true. I was just saying the profiling and hedge/no hedge was smart business, but agree totally that moving spreads, trageting dummies, slowing executions etc are dodgy / unethical.

 

[georgey]

I am with CMC and they're reducing their spread on Aus200 to 1pt from 2pts with BHP, RIO, WES, TLS and the 4 banks only needing a 3% margin compared to 5%. Some currencies and commodities spreads also being reduced from Sept.12.
Not that that would change much for the losers - may even encourage them to over commit and not realize how leveraged they are. Guess I would have been in the B group as my small account is the same after 1 year and am very cautious about position sizing (trade mostly indexes at this time).
If I started being a consistent winner I would have been put into the A group but so what, they would simply not bother to hedge my trades, no effect on me at all. Losers they hedge, but again so what. The only issue is whether they deliberately slow down executions, widen spreads etc. for consistent winners. If that happens too often I would simply leave. But unless one is scalping a lot I wonder if they would bother ( I assume it would all be electronically controlled). I have had no issues with them but then I only trade tiny.
Would there be a set number of contracts/shares where they would start to make it hard for a consistent winner?

 

[Alpha_Bet]

Hello Georgey,
I can only relate to you my experience of trading synthetic Indexes with another prominent CFD/MM provider not CMC.
I traded FTSE, S&P500, DOW and SPI200 synthetics. I traded these markets alongside the REAL FUTURES products provided by the Exchanges and my Brokerage firm. I was trading 4 full sized contracts of each contract ie: SPI200 = $100 pt. Was making good dollars for a couple weeks when things started to occur. Platform freezes every now and then, delay in execution etc.
One day SPI200 had one of those lovely upside expansion days ( buy open sell close) and my acct benefited to the tune high 4 figures. Following days nearly impossible to trade. Couldn't log in and on rare occasion I did had sticky tickets etc.
I closed acct following week.
I suggest if you can trade hit them for size on a few trades and close your acct. It's a great feeling.

 

[stuckinarut]

Hi ,

I saw your comments and thought you would be interested in some insight from someone who is involved day to day , at one of the major cfd/spread providers ( for the time being anyway ! )
Obviously I have to be careful. what I say in a public forum and can't be too specific .
All the companies take risk to some extent , that normally means taking on the clients bet. Not only is betting against ones (rubbish ) clients a predictable revenue stream , it also makes vastly more money than commission/financing alone
Taking the position against the client is fine in principle , but over the years the companies have increasingly moved the goalposts in their favor to make it more unlikely the client will profit even if he gets the market move correct .
The biggest culprits are the so called "benefits" such as credit accounts or high levels of leverage ( twenty times in some cases ) means just a small adverse move in an instrument will have the position liquidated due to margin requirements That is pure profit straight to the bottom line for the company.
I have even seen situations when the company has pushed particular securities in the market against the client , forcing the client to take a loss or to post more margin...
A couple of years ago -I worked on the FX side of my company. FX tends to be a more technical market and disciplined clients can make regular profits .However as far as the company is concerned the winners are not satisfied customers , they are a constant drain on overall book P&L.
The answer is to secretly put the winning clients on what the company calls a "priority " rating - basically a poor service setting , re quotes , wide prices etc until the client goes to another company.....
The firm also has the same policy on equities and will discourage business from any repeat winners. ( Mysterious problems with the market maker trading software not able to log in, re quotes etc ...)
The market really needs an impartial exchange to post the prices on , the temptation to bilk the client is too high with the current system...