This article touched a nerve this weekend its written by Simon Watkins titled Taking Stock May 8 2005, and I wanted some of your views on it.
"The falls resulted from a squeeze in the market for CFD, a derivative popular with high-rolling investors at the more colorful end of the stock market. CFD's allow investors to gamble on share prices by putting down only a fraction of the actual value of the shares. The advantage- and dangers - of CFD's is that investors can gain or lose far more than they initially stake. The investor holds a CFD and is invisible to other shareholders.
The dramatic effect on the wider markets comes when a CFD goes wrong and the investor loses money. If that happens, the broker might close the contract by selling the shares. This pushes the price lower, turning more CFDs bad, prompting more shares sales and so on in a vicious downward spiral.
Calls for CFD traders to be bound by the same rules as ordinary investors, in particular to declare their indentities on the same terms, are now surely irresistible."
Firstly, it sounds like this guy may have suffered a loss or two and is looking for a scapegoat to blame his bad investment decisions. The second paragraph gets me aswell. Read it through again. Isn't this how markets work regardless of whether their CFD's or not! And if CFD's were not available then we would be doing the same thing through the more traditional approach with an ordinary broker.
The falls resulted in their being more aggressive sellers than buyers. Not because of CFDs. Because the market is ready and ripe for this sell-off. Gamble? 2% of more Cash per trade isn't gambling and I'm sure many of you would agree. Maybe this is a reflection of his own behaviour.
It just irritated me to read an article so removed from the truth. And an article that will be read by thousands.
"The falls resulted from a squeeze in the market for CFD, a derivative popular with high-rolling investors at the more colorful end of the stock market. CFD's allow investors to gamble on share prices by putting down only a fraction of the actual value of the shares. The advantage- and dangers - of CFD's is that investors can gain or lose far more than they initially stake. The investor holds a CFD and is invisible to other shareholders.
The dramatic effect on the wider markets comes when a CFD goes wrong and the investor loses money. If that happens, the broker might close the contract by selling the shares. This pushes the price lower, turning more CFDs bad, prompting more shares sales and so on in a vicious downward spiral.
Calls for CFD traders to be bound by the same rules as ordinary investors, in particular to declare their indentities on the same terms, are now surely irresistible."
Firstly, it sounds like this guy may have suffered a loss or two and is looking for a scapegoat to blame his bad investment decisions. The second paragraph gets me aswell. Read it through again. Isn't this how markets work regardless of whether their CFD's or not! And if CFD's were not available then we would be doing the same thing through the more traditional approach with an ordinary broker.
The falls resulted in their being more aggressive sellers than buyers. Not because of CFDs. Because the market is ready and ripe for this sell-off. Gamble? 2% of more Cash per trade isn't gambling and I'm sure many of you would agree. Maybe this is a reflection of his own behaviour.
It just irritated me to read an article so removed from the truth. And an article that will be read by thousands.
