Spread betting...

talexuser

Story from the Telegraph
http://www.telegraph.co.uk/finance/personalfinance/investing/11562202/How-370-investors-lost-18m-in-minutes.html


One guy bet <10 grand on the Swiss Frank and lost 250K. Is this really a story, or just gamblers who lost (without perhaps knowing the risks they were taking - caveat emptor?) just whining about it afterwards?

bowlhead99

Yes, they're just whining because they lost. If they had been betting the other way and the market didn't execute their winning limit order because of market illiquidity, they wouldn't be saying it was outrageous that they won so much and going to the papers saying they wish they were allowed to pay it back because they shouldn't have been allowed to get involved in a trade that size.

There is no way someone puts £10000 into a betting/ investing account, places a trade representing close to £1m of underlying asset value, and then claims they had no idea they would lose 20% of the million when the market moves 20%. That is the fundamental way that spread betting or CFD trading works, and both the guy who lost £250k on the franc and the other guy who lost 300k because he had put his "life savings" with IG, can't be serious in saying they shouldn't have been offered the investment choices and didn't know what they meant.

This was not a granny putting her £100 that she needed for winter heating into what she thought was a safe investment. This was wealthy individuals betting massive stakes to pursue greedy ambitions. If they are let off, it would open the floodgates to everyone who ever lost a bet to say the terms weren't fair.

IG and others offer "controlled risk" positions where you can pay a bigger spread to guarantee that you can exit a position at your desired stop level rather than have the market gap up or down beyond the limit. Or you can place tighter stops to leave a better chance that you can afford the loss you actually get.

But greedier people won't want to buy insurance or take tight stops because they want to maximise their leveraged earning potential. And IG perhaps doesn't offer controlled risk positions on the very biggest bet sizes because it's too expensive an insurance policy for them to write and they figure someone staking that much is happy with their own money management plan.

Even if the IG system did seize: they don't make any claim that their platform offers direct market access and they warn that positions can become illiquid so stops can't be guaranteed unless you specifically pay them to guarantee that and they accept.

I expect they will get through any "investigation" ok, but will probably suffer plenty of bad debts as a result of the CHF/EUR that week, as did a bunch of other platforms (some, terminally so).