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Sledgehead

Spread Bettor Doubles Margin Requirements ~immediately

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"Summary of changes:

As of the date of this communication (11 September 2009) we are giving you notice that we will be increasing our margin levels for many of our share instruments.

The changes will apply to CFD, Spread bet and Fixed Risk accounts held with CMC Markets.

You have until the market opening time for the relevant instrument on Monday 21 September 2009 to meet the increased margin levels for these instruments."

Some frightening changes in the table below for those who push their luck. Ftse margin icrese from 3% to 10% is shocking. That's like being offered a 97% mortgage one day, then 5 days later being told you can only have a 90% one.

The doublings suggest they are expecting volatility that customers will not be able to trade their way through. Either that or customers are proving themselves to be much more wreckless and much less solvent than CMC had predicted in their original margin estimates.

Views / explanations welcome.

20090912___CMC_Margin_Increases.JPG

post-141-1252750397_thumb.jpg

Edited by Sledgehead

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I reckon its bad debts. Almost certainly, a lot of short getting badly burned with all the news of 'green shoots', who are unable to pay their losses.

It's possible that some of it has come from the prime brokers tightening up their margin requirements, for similar reasons - they are worried about default by the smaller brokerages and bookmakers.

At least, though, they are giving you over a week's notice that they are changing the margin requirement. When there was all the fuss over HBOS and bank shares being shorted in 2008, a lot of brokers and spread bookmakers changed their margin requirements on financial companies from 10% to 100% - immediately, and without notice. Any leverage at all, and your position was immediately cancelled (and if you took a loss, tough).

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http://stocks.fundamentalfinance.com/stock...ash-of-1929.php

During the 1920's more middle-class and lay citizens began investing in the stock market. Buying on margin became very popular. Margins were generally around 50% at the time--that is, a lay investor could give his broker only 50% of the value of the stocks he wanted to purchase and the broker would put up the rest of the money. The investor would then pay interest on the loan that the broker gave him--the 50% value of the stocks. If the stocks increased in value then the investor got to keep all of the profit. When he sold he would pay off his debt to the broker. If the value of the stocks were to decrease below 50% (or some set level) of the price that they were bought at, there would be a "broker's call" where the investor would have to give more money to the broker or sell the stock and pay off his debt. When someone buys on margin, the stock itself is acting as collateral. If the value of the stock decreases below the margin, then even after selling the stock the investor would still owe the broker money.

3% seems very generous compared to 29!

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I dont see why these companies are having bad debts, their systems should be set up so that as soon as the margin requirement moves above 100% of net account balance open positions automatically get closed

I wouldn't be at all surprised if this is easier said than done.

Herd instinct and behaviour probably dictates a typical customer who has an avergae A in his account, B in position size placed in instrument C, with stop D. When he's stopped out in a quick market movement, chances are many others will be. The spread bettor is left trying to offload the covering futures positions in a market going against hime. Inevitably the stops can't be filled at the requested level (and that includes automatic & margin led stops). Hence the premium for guaranteed stops, and these increases in margin.

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Perhaps they want to find out which clients are solvent and which aren't whilst volatility is low.

Perhaps they are sitting on a lot of short positions and wish to 'encourage' them to close or lighten up before the market sells off (If it does).

Those are pretty hefty changes, even with a weeks notice, without any apparent change in the underlying.

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"Summary of changes:

Some frightening changes in the table below for those who push their luck. Ftse margin icrese from 3% to 10% is shocking. That's like being offered a 97% mortgage one day, then 5 days later being told you can only have a 90% one.

The doublings suggest they are expecting volatility that customers will not be able to trade their way through. Either that or customers are proving themselves to be much more wreckless and much less solvent than CMC had predicted in their original margin estimates.

Views / explanations welcome.

The doublings suggest they are in trouble and that customers will not be able to loose their way through. Either that or their traders are proving themselves to be much more wreckless and much less capable than CMC had predicted in their original employment estimates.

are IG or prospreads or capital spreads changing ? no ? then they are in trouble... pulll your cash sharpish !!!

Edited by jonpo

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Views / explanations welcome.

They are deeply short themselves and want everyone to sell. Well, not everyone will sell but those who cannot meet new margin reqs will be selling and I suspect they are in a majority.

Screw on the way down phase I :P

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Guest happy?
"Summary of changes:

As of the date of this communication (11 September 2009) we are giving you notice that we will be increasing our margin levels for many of our share instruments.

The changes will apply to CFD, Spread bet and Fixed Risk accounts held with CMC Markets.

You have until the market opening time for the relevant instrument on Monday 21 September 2009 to meet the increased margin levels for these instruments."

Some frightening changes in the table below for those who push their luck. Ftse margin icrese from 3% to 10% is shocking. That's like being offered a 97% mortgage one day, then 5 days later being told you can only have a 90% one.

The doublings suggest they are expecting volatility that customers will not be able to trade their way through. Either that or customers are proving themselves to be much more wreckless and much less solvent than CMC had predicted in their original margin estimates.

Views / explanations welcome.

They've obviously heard something you've missed. Personally, I've cashed-up everything and am now heavily into gold.

There, that should send this thread off-topic and get the mods to move it.

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If you're talking about the real stock market then the effect will be zero since spreadbetting accounts don't deal in real stocks to my knowledge. It appears to be them tightening credit lines-anyone who plays the spreadbetting game is asking to get bitten...it's a mugs game if ever there was one.

no spread betting is big bissiness just look at IGG.L spred betting companies because of their tax efficent nature.

Ive heard of people doing 3000GBP per cent on silver futures... and there were also stories about M Ashley doing 800,000 per pence on HBOS (he lost the mugg)

http://www.mirror.co.uk/news/latest/2008/0...15875-20745653/

tax dodge ... no company would take that bet and not hedge it !!!

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Inevitably the stops can't be filled at the requested level (and that includes automatic & margin led stops).

Speaking from the other side of the fence, the market's getting really rather good at deducing the maximum price a buyer will pay as well as the minimum price a seller will accept.

From this I conclude several things (in no particular order) :-

1/ anyone claiming to forecast economic conditions (macro or micro) further out than a millisecond ahead is a charlatan

2/ (effective) electronic retail brokerage spreads are going to widen - a lot

3/ stops on retail brokerage accounts hold all the utility of a fishnet condom

4/ non-electronic brokerage is facing an extinction event

Back to your central point, one is reminded of IG last year...

http://ftalphaville.ft.com/blog/2008/11/20...8/markets-live/

NH:but there has been a marked increase in bad debts

NH:they increased to £15m, with 80% of this occurring in October

PM:So a lot of margin calls were not met

NH:would seem so

(as always Sledge, a joy to read your posts)

Edited by ParticleMan

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The doublings suggest they are in trouble and that customers will not be able to loose their way through. Either that or their traders are proving themselves to be much more wreckless and much less capable than CMC had predicted in their original employment estimates.

are IG or prospreads or capital spreads changing ? no ? then they are in trouble... pulll your cash sharpish !!!

Client spreadbetting funds at CMC Markets are kept in a 'segregated' account at the bank, and spreadbet clients are covered by the Financial Services Compensation Scheme for ~£50k per individual. The segregated bank account means that both CMC and their bank (Natwest when I worked there) would need to go bust on the same day for clients to lose their funds. In such an event, the FSCS still holds true for ~£50k per person.

My thoughts on the margin changes are that they're nothing more than an internal Risk Management exercise. The traders at CMC are not encouraged to run sizable long or short positions in anything, but instead they manage the firms overall exposure (net client longs vs net client shorts) by trading the underlying futures markets.

The 10% margin change is IMO fair considering the market volatility of the past year. I'll do some digging from ex-collegues and post my findings, but I don' t think CMC are in any serious trouble. Expect IG, CS, et-al to follow suit.

There may be trouble ahead, but while there's moonlight and music and love and romance....... ;)

Edited by Blink-Star

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The 10% margin change is IMO fair considering the market volatility of the past year. I'll do some digging from ex-collegues and post my findings, but I don' t think CMC are in any serious trouble. Expect IG, CS, et-al to follow suit.

There may be trouble ahead, but while there's moonlight and music and love and romance....... ;)

Ahem.

Just in from IG Index

Lower deposits on two-thirds of our global shares

We previously announced deposit reductions for 900 blue-chip shares. Now we are extending this benefit to over 3750 additional stocks, with many deposit rates to be cut by 50% or more.

As the world's largest and longest running spread betting company, we are committed to offering our clients highly competitive deposit rates. From 24 October 2009 you will be able to take advantage of:

* Reduced deposit requirements on 3750 more global shares (over 4650 in total)

* Over 1500 shares with deposit rates 50%+ lower than before

Tiered deposits

This second phase of large-scale deposit reductions has been made possible by our new Tiered Deposit system which came into effect for blue-chip shares on 21 September.

Your deposit requirement is now determined by the size of your aggregate position in a particular share. The majority of positions attract our lowest deposit rates, reflecting the liquidity of the market at smaller deal sizes. Larger positions may require a higher deposit, as it is more difficult to trade out of these positions quickly. As part of this review, the deposits on less than 10% of our shares will increase.

For a detailed explanation and a full list of the new Tiered Deposit rates, please visit our Tiered Deposits section.

The new deposits will be shown on your statements produced overnight on 23 October and reflected on your account on Saturday 24 October 2009. You must ensure your account contains sufficient funds to meet any increases in deposit requirements before we re-open for business on Sunday 25 October.

Kind regards,

IG Index

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Ahem.

Just in from IG Index

Lower deposits on two-thirds of our global shares

We previously announced deposit reductions for 900 blue-chip shares. Now we are extending this benefit to over 3750 additional stocks, with many deposit rates to be cut by 50% or more.

As the world's largest and longest running spread betting company, we are committed to offering our clients highly competitive deposit rates. From 24 October 2009 you will be able to take advantage of:

* Reduced deposit requirements on 3750 more global shares (over 4650 in total)

* Over 1500 shares with deposit rates 50%+ lower than before

Tiered deposits

This second phase of large-scale deposit reductions has been made possible by our new Tiered Deposit system which came into effect for blue-chip shares on 21 September.

Your deposit requirement is now determined by the size of your aggregate position in a particular share. The majority of positions attract our lowest deposit rates, reflecting the liquidity of the market at smaller deal sizes. Larger positions may require a higher deposit, as it is more difficult to trade out of these positions quickly. As part of this review, the deposits on less than 10% of our shares will increase.

For a detailed explanation and a full list of the new Tiered Deposit rates, please visit our Tiered Deposits section.

The new deposits will be shown on your statements produced overnight on 23 October and reflected on your account on Saturday 24 October 2009. You must ensure your account contains sufficient funds to meet any increases in deposit requirements before we re-open for business on Sunday 25 October.

Kind regards,

IG Index

Interesting. I'm keen to know the 'tier' thresholds. I'm guessing that anything over £10 per point will be subject to a higher-tier margin rate of some kind. CMC used to market their spreads in this way back in their deal4free.com days...... you can have a 2 point FTSE spread, but if you trade in anything size-able you'll be subject to a requote.

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