unlimited losses on spreadbet on indexes

[dc2000]

Doesn't the ftse freeze at -200 points to stop panicking selling??

If so then only trade the ftse. Most you can lose is -200 points a day.

there is a point at which trading is halted even on the US markets but that is not to say that the next day selling can't continue and also the a spreadbetter has to offer a price, they can suspend their quotes whilst the markets are open
Before anyone thinks Im just having ago at SBs in this scenario the punter would also have been silly by trading 100 per with only £50k and holding overnight is just asking for trouble

 

[in2uxs]

Maybe if we hold positions overnight we would be wise to hedge are own stocks rather than set stop limits.

If the worst happens we'd cut our loses drastically.

 

[roguetrader]

That's right - most of them can invoke a force majeur clause which means all bets are off (except the losing ones, I would guess....)

sorry but that's gotta be the maddest thing I've heard yet, there'll be people out there dreaming about hitting "The BIG One" and when it comes the company can declare force majeur and not pay...priceless.

 

[in2uxs]

I've just read CMC's terms. I don't like the thought of my money not been segragated from CMC's money. If they go belly up we "creditors" lose our money without FSA protection. Not nice.

I haven't goy a lot of money in my CMC account, and having read these posts I don't think I'll put anymore in. Can't beat trading the physical share when all is said and done.

 

[Jack o'Clubs]

It's interesting isn't it - all those T&C's I've blithely checked as 'read and understood' when opening online accounts, and there's actually some really informative stuff in them!

 

[stevespray]

I think that you'll find that in a spreadbetting account up to about £50,000 is protected under the FSA scheme if the company were to fail. If you trade CMC CFD's then they make you sign an 'intermediate agreement' which basically wiaves your right to the same protection under spreadbetting. Technically, if they make you sign this then they must take steps to ensure that you understand the ramifications of signing such an agreement and also that you are 'experienced' enough from a trading point of view. This can be done through a telephone interview via the compliance department.
Some companies allow a form of credit facility where by your bank writes a document signifying that you have x amount of liquid capital for the purposed of NTR, this saves you actually having to deposit funds and therefore protects your capital.

With regard to losses..... They are unlimited and can certainly exceed your account balance. Under FSA regulations all spreadbets are legally enforcable contracts enforcable by either party. This is why technically the companies can't cancel bets without your agreement - its a breach of your rights under the financial services and markets act of 2000 - you have the right to enforce the contract if you so wish.
If you read the T&C of most of the contracts then you will find that they favour the company in most if not all situations. If there were to be anothet 9/11 type event then I think that you would find that most of the companies would start treating orders very slowly with much larger spreads. During the 9/11 event some of the companies started quoting Dow with a 200 point spread. If you had stops below the market then they could have gapped you 200 points! Ouch!

Steve.

 

[in2uxs]

Going long at £100 a point ... and then the market crashes

There you sit glued to the screen watching just watching

good game ... good game...

I learnt my lesson lonnnnnnnng ago about over leveraging positions. I use the highly technical "Dr. Who" test now to check if i'm over leveraged - if I Daren't knock off and watch Dr Who for fear of the market ruining me then I'm way over leveraged.

God bless Billy I say!

Those who bet big, and keep their fingers crossed are simply market fodder - and always will be.

I have learnt over the years to treat the market as a marathon rather than the 100m sprint. If the market falls I see this as a good time to buy cheap shares rather than time to find a rope and a low branch.

 

[ANDRE17]

Thanks for your thoughts and answers guys. Ive got a cmc spread acc but must try and find out if its segregated-- i think it is as its a sfa reg ---its difficult to find this small print --its so bloody small you need a microscope ! The t+c pages are not well signposted on websites

 

[Jack o'Clubs]

Andre - if you click on the CMC website to open a new account, the first screen you get has all the T&Cs as pdf files.

 

[ANDRE17]

Going long at £100 a point ... and then the market crashes

There you sit glued to the screen watching just watching

good game ... good game...

I learnt my lesson lonnnnnnnng ago about over leveraging positions. I use the highly technical "Dr. Who" test now to check if i'm over leveraged - if I Daren't knock off and watch Dr Who for fear of the market ruining me then I'm way over leveraged.

God bless Billy I say!

Those who bet big, and keep their fingers crossed are simply market fodder - and always will be.

I have learnt over the years to treat the market as a marathon rather than the 100m sprint. If the market falls I see this as a good time to buy cheap shares rather than time to find a rope and a low branch.

You could have a scenario where someone had a good system and compounded from 10 quid up to 100 many months or a few years later so with the compounding they were up to 100 a tick -- ok they have a large bank behind them but not one for 500+ pips . Some people do 100 as a matter of everyday trading -- by the way I only do 10-20 on a big day but maybe in a while i will get to 100 and then --- 9/11 --the lots gone !

 

[ANDRE17]

Andre - if you click on the CMC website to open a new account, the first screen you get has all the T&Cs as pdf files.

ill have a look --- I use their marketmaker programme which has help and a dealing guide but couldnt find the t+c amonst it -thanks for the info Jack

 

[in2uxs]

Be careful regardless of what the T&C say. Its all down to the lawyers at the end of the day.

If you wake up one morning owing £20,000, then believe my very clever people will be stretching the wording of such terms to the limit.

Prevention is better than cure.

 

[stevespray]

The Spreadbetting account will be segregated. I dont think this means that creditors can not make claim against clients fund though if a company were to fail. That would need looking into. What would also need investigating is whether open bets constitute clients funds - in other words does the profit contained in an open position count in terms of loss if a company were to fail whilst the bet was still open? Since the profits were not 'crystalised' you could end up being in a situation where you were classed a creditor. Again it needs looking into especially if you rely on one spreadbet position to offset other positions. I do this quite a lot with options straddles.

Steve.

 

[LION63]

Andre17,

All (at least the ones I have come across) spread betting companies offer guaranteed stop losses for good reason, whilst it might cost a bit more, it protects the trader from the unexpected, especially when the trade is out of proportion to the account balance. An individual that has £10,000 and wants to trade at £100 per point would be better off trading with IG Index where he/she would be all in with a 100 point stop. No sleepless nights, heart attacks or potential unlimited liability. As has been mentioned, the same trade done through CMC would require an additional margin of £10,000.

Another important factor to consider is that CMC and IG Index start quoting the DOW from Sunday/Monday through to Friday evening so the potential to be caught out by a massive gap down during these hours is very slim if not non existent.

Finally, CMC will close your trade once your account falls into margin deficit which is what would happen in this case if you do not have a stop (guaranteed or market based). This would happen once your account balance falls to about £5,000 so the chances of you owing them money are ZERO.

 

[in2uxs]

I would imagine that should disaster strike companies such as CMC would just freeze all prices. I do know that during severe market falls market makers are released from their obligation of buying and selling shares at quoted prices - this is to safe guard them as even they can go bust when the world's largest banks decide to sell off billions of pounds worth of shares all withing a few minutes. I would imagine that during such times CFD and Spreadbetting companies would just freeze all prices and say "owing to market conditions all prices will be frozen until...". just as they do during double witching.

 

[ANDRE17]

Andre17,

All (at least the ones I have come across) spread betting companies offer guaranteed stop losses for good reason, whilst it might cost a bit more, it protects the trader from the unexpected, especially when the trade is out of proportion to the account balance. An individual that has £10,000 and wants to trade at £100 per point would be better off trading with IG Index where he/she would be all in with a 100 point stop. No sleepless nights, heart attacks or potential unlimited liability. As has been mentioned, the same trade done through CMC would require an additional margin of £10,000.

Another important factor to consider is that CMC and IG Index start quoting the DOW from Sunday/Monday through to Friday evening so the potential to be caught out by a massive gap down during these hours is very slim if not non existent.

Finally, CMC will close your trade once your account falls into margin deficit which is what would happen in this case if you do not have a stop (guaranteed or market based). This would happen once your account balance falls to about £5,000 so the chances of you owing them money are ZERO.

I will see what IG charge as a premium for controlled risk bets . cmc charge 2 on ftse and 4 dow so double their normal . As you say they would close position once you are in deficit thats true buy you are liable to the full loss --- say you buy dow at 12000 stop at 11950 but its nearly at 11950 and 9/11 happens it must gap lower even if the exchanges are open -- there may be the odd old order still in the system but they would go and the next price would be ? 11000 ? could your broker via futures even or spreadbetter close it quickly in those seconds -- unlikely -- hence you will still owe them a truckload -- so back to controlled risk bets --- thats alot a of premiums if it only happens every 10 years ! If you traded once a week you would need to be unlucky !

 

[LION63]

As you say they would close position once you are in deficit thats true buy you are liable to the full loss --- say you buy dow at 12000 stop at 11950 but its nearly at 11950 and 9/11 happens it must gap lower even if the exchanges are open -- there may be the odd old order still in the system but they would go and the next price would be ? 11000 ? could your broker via futures even or spreadbetter close it quickly in those seconds -- unlikely -- hence you will still owe them a truckload --

You must remember that on 9/11 whilst the US markets were closed, the European markets were open so there weren't any gaps. More importantly (sticking with this example) when the first plane struck it was all over the news and wires and quite a few traders were glued to their screens at the time. It was quite easy to close any long positions and short any share or index at the time, it is not events like this that will break traders but those that occur during weekends. Anyone on the wrong side of these without guaranteed stops is in serious trouble when the market opens on the following Monday.

Even the 1987 crash could have been avoided by those who reacted on Friday evening rather than sitting their twiddling their thumbs.

 

[ANDRE17]

You must remember that on 9/11 whilst the US markets were closed, the European markets were open so there weren't any gaps. More importantly (sticking with this example) when the first plane struck it was all over the news and wires and quite a few traders were glued to their screens at the time. It was quite easy to close any long positions and short any share or index at the time, it is not events like this that will break traders but those that occur during weekends. Anyone on the wrong side of these without guaranteed stops is in serious trouble when the market opens on the following Monday.

Even the 1987 crash could have been avoided by those who reacted on Friday evening rather than sitting their twiddling their thumbs.

You are right --- you just have to assume cmc dealers who have your stop dont fiddle their thumbs -- as they say no stop is guarantreed -- if they forget it for half an hour thats ur hard luck --thanks for the reply

 

[in2uxs]

Dealing is as risky as you make it.

Play the £100 a point game and you will get burnt ... eventually.

Play for peanuts - get monkeys. ... monkey's are fit and healthy creatures that always seem happy.

Be a monkey!

 

[ANDRE17]

Dealing is as risky as you make it.

Play the £100 a point game and you will get burnt ... eventually.

Play for peanuts - get monkeys. ... monkey's are fit and healthy creatures that always seem happy.

Be a monkey!

good point -- i was only mentioning that losses are unlimited -- even on 2 a pip and it moves 1000 thats alot to a small punter but I understand what ur saying --its all relative