Making a claim against a cfd provider

This is my first post here so here goes! I opened a cfd account with cmc markets a couple of weeks ago having previously traded in cfds and spreads with cityindex, igindex, and spreadex. Their margin requirements seemed the best I had come across.

I deposited £30000 into the account and entered into two trades: a sell of 500 on the ftse 100 and 2500 on the S&P 500. This left about 40% of the funds clear to cover any short term movements against me. For the first twenty minutes I was in profit and indeed doubled the initial stake. Although I could have closed at this point I anticipated further drops and so I kept the positions open whilst they moved against me. I then received an email asking for the immediate deposit of extra funds.

The industry standard is to give at least two working days for cleared funds to arrive in the account before closing the positions, but as I had the available funds to pay the margin in my current account I immediately called their number with my debit card ready. They kept me waiting in a queue for over twenty minutes before answering. When they did they informed me that my positions had been liquidated owing to my failure to meet the margin request. I also received an email saying the same - this arrived two minutes after the initial request for payment.

Although I pointed out that I could easily have made the payment and it was only because they were 'busy dealing with other customers' as they put it, that funds hadn't reached the account sooner, they said that it was my fault as I should have made payment online. And if I didn't like it then I was welcome to take them to court.

This is invalid, firstly because the email requesting margin gives the option of paying over the phone, so I can't see why I should have to try both methods within the two minutes provided. Secondly, I did try paying online whilst being delayed in the queue, but when I tried paying online the server failed to redirect me several times. In any event, paying using their online form requires you to reenter the debit card details by hand every time you use the form and this alone would have taken a good two minutes, never mind about the time taken for the site to load, card authorisation, and cleared funds reaching the account. That was why I had thought it more sensible to quickly (lol) phone them and make payment before they made any trouble.

By liquidating my postions they cost me the full £30000 that I deposited and left my account over £5000 in the red on top of that. As I expected the positions shortly moved back in my favour afterwards - not that it helped me by then! £35000! That's two years wages! Stolen by the *******s because they fail to staff themselves sufficiently.

I have never come across anything like it in the time (1 year approx) that I have been trading the same products using the above providers. I cannot see how this could possible be legal, although it is quite clear that they must be doing this with everyone.

There is no way that I am going to accept this, so the question is whether I should directly speak to a solicited to take them to the high courts, or take the issue up with the financial ombudsman instead. The quicker and simpler the process, the better, but I just cannot accept this theft whatever it takes. Anyone else think it's unnacceptable? Thanks Michael

What do you mean by "a sell of 500 on the ftse 100 and 2500 on the S&P 500"?

You don't mean £500 a point and £2,500 apoint do you?

So lemme get this straight . . . .with £30,000 pounds margin, you opened up two index positions that, 20 minutes later, were under-margined?

No wonder they closed you out.

dreamer628,

you clearly need to get to the bottom of this, especially with the amounts involved.

what you need to do is:
+ clarify exactly what positions you took, the entry price, and the margin required for each position.
+ do their charts show the price going against you to the extent they say?
+ can you show that accounting for the price moves, your account had sufficient funds?
+ you should have the margin-call email with date-stamp, and you should be able to correlate this with your phone-log of contacting them, to prove you responded immediately.
+ can you find the relevant part of your terms and conditions that state the time-frames you are allowed within which to respond to a margin-call?

sorry to hear of this, and hope you get it sorted.
keep us posted.

I don't think you have a chance of getting your money back:

The Ig index terms & conditions state:

1. The high degree of 'gearing' or 'leverage' is a particular feature of this type of transaction. This stems from the margining system applicable to such bets which generally involves a comparatively modest deposit or margin in terms of the overall contract value, so that a relatively small movement in the underlying market can have a disproportionately dramatic effect on your bet. If the underlying market movement is in your favour, you may achieve a good profit, but an equally small adverse market movement can not only quickly result in the loss of your entire deposit, but may also expose you to a large additional loss unless you enter into a limited liability contract with the firm.

If you deal on a credit basis, which may amongst other payments cover the initial margin requirements, the extent of your agreed credit facility does not limit your loss or financial liability and you can be subject to margin calls for an amount in excess of your facility. As a consequence the amount of capital which you are prepared to place at risk should be sufficient to cover your credit limit and the possibility of subsequent margin calls which will only be made once your credit limit has been exceeded.

2. You may be called upon to deposit substantial additional margin, at short notice, to maintain your bet. If you do not provide such additional funds within the time required, your bet may be closed at a loss and you will be liable for any resulting deficit.

To me, it's clear that it is your responsibility to make sure you have enough money in the account at all times.

I did not risk more funds than I was prepared to lose, and I did have sufficient funds to cover any required margin. As I wrote above I attempted to make payment, and would have had funds in my account with easily enough time had they answered the phone. My issue is obviously not with the concept of margin being required to cover losses it is with the fact that they are making it impossible, I repeat impossible, despite every reasonable attempt to make the payment required within the unadvertised two minutes. It is evident from the above responses that many have indeed become accustomed to such practices as I suspected. That makes it no more acceptable. Anyone thinking that this was acceptable clearly should be looking at alternative providers. I have been through the margin call and payment process dozens of times with all the above mentioned providers, and for those who are unaware the standard process is as follows: once the position moves against you they either give you a call or an email requesting payment and giving the specific time period required. If it is a large amount they will phone to ask whether you can meet their terms and inform you that if you cannot they will be forced to close positions. The standard time given for payment is two to three working days, unless the required margin is above a certain figure (£10000 with cityindex and £20000 with spreadex; Igindex have no such limit, giving the standard time frame regardless) in which case payment will be required on the same day, and they will give a cut off-time, usually the close of business (4:30-9:30) or midday/middnight, whichever is sooner. If you are not able to pay they will then close your positions, something that I have never had to experience, always having had sufficient capital to cover movements against me. I was well aware of the amount of capital at risk having traded in such quantities on many occasions previously. Again, anyone who thinks that the procedure I have just described is something exceptional seriously needs to look at changing their broker. Had they given any indication that they would have behaved in this manner I would have deposited sufficient funds into the account to cover any such movements from the outset, which they should be recommending but don't. But then that is the whole point of cfds and spread betting, that you can use the funds for other purposes until/unless they are required for margin.

PualoP said:

What do you mean by "a sell of 500 on the ftse 100 and 2500 on the S&P 500"?

You don't mean £500 a point and £2,500 apoint do you?

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No idea!
Also dont understand why he'd bet so big and be so prepared to throw 30k away if it's '2 years wages' to him??.....

I think it's sharp practice - but considering the current volatility and the amount of money at stake I can see why they did it.

To be honest it's the oldest trick in the book, I don't know why you would put yourself in a position to fall for it - especially if you are experienced as you claim. I'm afraid you have no one to blame but yourself. I don't think a legal case would get you anywhere tbh.

This is CMC not IG.

Their T&C state the following....

Term 7.11

We may allow your Contracts to remain open, notwithstanding that you have failed to meet a Margin Call. Where this occurs, we will at any later time be entitled to close all or part of your open Contracts unless the Margin Call has been satisfied. Without prejudice to any other right we may have under this Agreement to close or limit your Contracts, we reserve our right to close out all or part of your open Contracts if you do not meet a Margin Call within three (3) business days of its receipt.

It would seem that there are some grounds for redress since CMC gave the client a 'margin call'. There is no obligation on CMC's part to give a margin call and the client is advised to keep a balance at such a level to cover the margin requirements of the open positions. However, it appears that if CMC give you a margin call then they must adhere to the rules regarding a margin call - in this case it appears that you have 3 days.

It's quite a strange set of T&C's and this makes for a strange dispute. If CMC just closed your positions, due to not having enough margin, then they would appear to be simply exercising their rights under the T&C. On this occasion though it appears that they issued a 'margin call' and therefore the rules relating to a margin call must be followed.

Dreamer, sorry to hear about your plight but you've got one hell of a case to fight. The markets over the last month have been incredibly volatile and every spread betting company will have been ordered to watch their overall client risk, and yes perhaps even follow common sense more than whatever their requirments are.

Somebody trading £500 a point with only £30k in cash was a disastor waiting to happen. I'm surprised they even took the bet in the first place. Maybe they were just setting you up, but that's what bookies love to do with all their clients. But if you think about it, you gave them enough rope for them to hang you with.

Fighting this will likely cost you a lot of money as I think the FSA won't be interested. You'll have to employ a lawyer, but a specialised one who understands spread betting/derivatives and risk etc.

I don't see in what sense I could possibly have 'no one to blame but myself'. Having been through trades and margin calls etc with all the other providers so many times the process has always been perfectly above board. In reference to the fact that cmc clearly have the worst margin processs of all the above companies this is simply a point to remember. My case is not based upon their dreadful operating procedures as this is not a cause for making a claim against them but simply a reason to recommend that nobody should use them in future - after all why use a company that has worse procedures than its many competitors. My case against them is just that they made it impossible to provide the margin payment requested in the time provided as a result of their not answering the phone in time. As I called them immediately this makes them responsible for funds not arriving in time, and they should have retroactively reopened the positions once payment had been made as it was THEIR fault.

keano said:

No idea!
Also dont understand why he'd bet so big and be so prepared to throw 30k away if it's '2 years wages' to him??.....

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When I describe it as two years wages I am simply making reference to the average worker so as to give an idea as to why I don't see that I should just accept it, regardless of the amount of work involved. In terms of my being prepared 'to throw 30k away' I am prepared to risk far more capital than that where I am certain based upon technicals of the movement over the next day or two. That is how I make money. Indeed If I hadn't been closed out I would today be about 300k up.

The point is that I am willing to accept risk when I make a high confidence bet AGAINST THE MARKET. Where I am not prepared to throw 30k away is on a company costing me this amount as a result of their failure to answer the phone!

I guessing here, but I think you have failed to understand the difference between initial, effective and variation margin and how CMC treats your deposit.

But more to the point, you're having a laugh if you thing the spread betting company is going to allow you to wipe out your account and more, then keep your positions open for up to another 3 days in the hope that you may deposit some more cash?

PualoP said:

I guessing here, but I think you have failed to understand the difference between initial, effective and variation margin and how CMC treats your deposit.

But more to the point, you're having a laugh if you thing the spread betting company is going to allow you to wipe out your account and more, then keep your positions open for up to another 3 days in the hope that you may deposit some more cash?

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They all do, that's how cfd/spreads providers operate, I have personally experienced your 'laugh scenario' over 2 dozen times, and those are the t&c under which they operate. If you don't know anything about them as you evidently don't there's no point in you talking.

dreamer628 said:

They all do, that's how cfd/spreads providers operate, I have personally experienced your 'laugh scenario' over 2 dozen times, and those are the t&c under which they operate. If you don't know anything about them as you evidently don't there's no point in you talking.

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Like I said, you need to do some reasearch because in your vastly superior 1 year of trading trading experience, you have failed to understand the difference between initial, effective and variation margin and how CMC treats your deposit.

If you want some serious advice - put £50k in their account - phone them up and try and negotiate with them by threatening to move the £50k elsewhere. Otherwise I think you've got no chance of getting any of it back.

As I say it's the oldest trick in the book - and none of them are above pulling it.

anley said:

Dreamer, sorry to hear about your plight but you've got one hell of a case to fight. The markets over the last month have been incredibly volatile and every spread betting company will have been ordered to watch their overall client risk, and yes perhaps even follow common sense more than whatever their requirments are.

Somebody trading £500 a point with only £30k in cash was a disastor waiting to happen. I'm surprised they even took the bet in the first place. Maybe they were just setting you up, but that's what bookies love to do with all their clients. But if you think about it, you gave them enough rope for them to hang you with.

Fighting this will likely cost you a lot of money as I think the FSA won't be interested. You'll have to employ a lawyer, but a specialised one who understands spread betting/derivatives and risk etc.

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You may think it is disaster waiting to happen, but those are the terms under which they all operate, although the typical margin requirements are normally several times higher. I am suprised to hear you describe them as bookies, as this isn't betting but trading through contracts for difference. Again I could have put up as large a deposit as would have been required, or given them permission to automatically take funds from my debit card, but that isn't how they operate. Again the issue is with their first making a margin call and then failing to take payment despite my immediate response. This is an administrative failure on their part that they must be liable for. Thank you for your advice at the end.

dreamer628 said:

You may think it is disaster waiting to happen, but those are the terms under which they all operate, although the typical margin requirements are normally several times higher. I am suprised to hear you describe them as bookies, as this isn't betting but trading through contracts for difference. Again I could have put up as large a deposit as would have been required, or given them permission to automatically take funds from my debit card, but that isn't how they operate. Again the issue is with their first making a margin call and then failing to take payment despite my immediate response. This is an administrative failure on their part that they must be liable for. Thank you for your advice at the end.

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But you seem to be missing a key point - That is that a firm requires you to have in place a certain amount of margin for the size of trades that you're doing. You were betting that the market would fall so you opened two bets to take advantage of falls in the market. To all intents and purposes a short on the S&P and a short on FTSE are very similar bets - they pretty much fall and rise together.

You deposited £30,000 and firstly opened a short bet on FTSE for £500 per point - a 60 point move against you would wipe your account out. In the present conditions FTSE can move 60 points two minutes! This doesnt even consider your NTR (deposit margin) on the instrument which one imagines would be atleast 50 if not 100. Even if its as low as 50 then you only have 10 points of 'headway' in terms of variation margin. These senarios dont even consider that you then went on and opened a short on ES for £2,500 per point! Goodness knows what the requirements were for that. It seems to me that the bet was reckless in the extreme. My guess is that you exceeded your NTR in just opening the two positions regardless of which way the market went.

Your mistake was allowing your account to fall into a position where you allowed CMC to exercise their contractual rights to start altering your positions due to poor margining. Your position sizes are many times too large for your account size. Personally I would suggest that you should have deposited around £300,000 for this size of bet. Even then you would need to monitor the positions closely. We've had a 35.00 point move on S&P since midday today; that would equate to a move of £87,500. Overall volatility is a fair bit lower today than it has been and yet £87,500 would still represent a shift of some 29% on a £300,000 account.

Opening the bets as you did pratically handed CMC a free option in financial terms.

Steve.

Dreamer

OK, how's this then. You open an account with £30k and last Monday (week back) buy the FTSE at £500 a point. The £30k is quickly lost and then the market falls several hundred pounds the next few days.

The SB firm though is 'happy' though because you've said that their £600k+ cash is on the way

C'mon, it just aint going to happen. People don't have a lot of sympathy for you (don't confuse this with not liking you) because you traded SO agressivly on such a small amount of money. Surely if you make your living in this game you should have understood that your position was SUPER HIGH risk the moment you put it on. High risk in regards to potential p&l and high risk in regards to be forced out because not nearly enough excess free cash in the account.