City Index

[pboyles]

Just read this articlein this mornings DailyTelegraph and thought it might be of interest

Michael Spencer forced to inject £70m as City Index clients default - Telegraph

 

[Trader333]

How has this happened if all positions were hedged as we keep being constantly told is always the case with SB companies and that they are not trading against you 🙂

Paul

 

[PualoP]

How has this happened if all positions were hedged as we keep being constantly told is always the case with SB companies and that they are not trading against you 🙂

Paul

Credit Risk

Client goes long Spanish Property company = -£10m
City Index also hedges and goes long Spanish Porperty company = -£9m

The net effect should be that City Index end up +£1m, but the client stiffs them and City Index actually end up -£9m


The same thing happened to IG Index a few months ago, this is getting stupid. I bet a firm will have a proper blow up soon.

 

[stevespray]

How has this happened if all positions were hedged as we keep being constantly told is always the case with SB companies and that they are not trading against you 🙂

Paul

If you think about this then it's because they did hedge that he's had to inject the money!

It's the clients who are defaulting not CI. This means that CI are left out of pocket when a client position goes negative but the clients fail to pay CI.

Steve.

 

[pboyles]

If you think about this then it's because they did hedge that he's had to inject the money!

It's the clients who are defaulting not CI. This means that CI are left out of pocket when a client position goes negative but the clients fail to pay CI.

Steve.

So they gave him credit to trade?

 

[PualoP]

If you had over £100k liquid assets then most spread firms used to give you credit

 

[stevespray]

If you had over £100k liquid assets then most spread firms used to give you credit

It's also the case that they're offering credit to deal on leveraged instruments.... you can see how it stacks up.

House of cards principle.

Again, according to the article, its just a few clients (ie 6) causing the majority of the problems with one client owing more than half the total loss.

Steve.

 

[Trader333]

Good points, well made.


Paul

 

[Claudia123]

How has this happened if all positions were hedged as we keep being constantly told is always the case with SB companies and that they are not trading against you 🙂

Paul

Exactly and it be interesting to know who owns the Spanish property company that 29 mil got lost in. That beat my £20 bet on swissy every day for sure.