Did you know Australian CFD & FX brokers can use your money?

Did you know Australian CFD & FX brokers can use your money to hedge their exposures?


http://cfdfxforum.com.au/cfd-forex-petition/

All brokers have the option to do that. its in the fine print.

"Your funds will continue to be at risk whilst you are investing in a CFD or FX provider who is not a CFD & FX Forum Member."

Really? A misleading don't you think?
There are brokers out there who aren't members and don't use client funds.

What does it change ? If the money is at risk with customers' positions, they will only take a loss if the customers take a loss, so this money won't be needed anymore ... You have to understand that all the trades the customers take are against the broker, and when the broker hedges itself, it takes again the same positions against someone else (on a market, or with a liquidity provider). The potential losses the broker will take = the losses the customers will take. So it can be done with their money.

To be correct, the broker takes the OPPOSITE positions of the customers (against them), and then again the OPPOSITE positions of the previous ones to hedge them (=the customers' positions)

This is not the case with B - Book brokers.
If the broker is "betting against the client" on the trade and hasn't hedged and loses where does that money come from ? Client funds ?

Lasty, the subject of the thread was: "The broker uses the money of the customers to hedge himself' ... Now, it's a very good point you're bringing up. I understood "hedge himself" as what I understand it means: To really HEDGE his exposure, not market making (or being a bucket shop, or aggressively B booking)


So I don't see any problem with the customers' money being used for that.

In the case you're mentioning: When the broker takes the customers' trades WITHOUT hedging himself, where does the money for the customers' gains come from ? The obvious answer is: From the other customers' losses. But what if there is more gains (from customers overall) than losses, you're asking.

First, it's sadly unlikely You can look at all the data, statistically, there WILL be more money lost than gained if you run the thing on enough trades/customers, because the odds are in favor of a 100% bucket shop, like in the casino, because of the SPREAD (which will act as the 0 on the roulette). In the real world, when you see the reports of the US regulator about how many accounts are winners and how many are losers, there is almost NEVER more than 50% winning (I never saw it, that's for sure)

But this isn't probably an acceptable answer. There can be moments where the broker would loose big, with no guarantee he can survive before it gets better. So, the broker should indeed only RISK HIS OWN CAPITAL in this case, where he bets against customers. And this is where the money should come from: From the broker's capital.


So, you are right, forcing brokers to segregate customers' money would address this issue (which I didn't even think about). The thing is that it forces brokers to use only their own money to really hedge trades too, when this isn't a problem. And this forces brokers to have almost as much capital as they have customers' funds ...


Funny thing is that if you look at the website of the CFD and FX forum, it's the big brokers (Oanda, IG, CMC and Gain) behind this ! The FAQ says: "The Australian CFD and FX Forum is an industry body, established by Australia’s leading CFD providers". Seems they want to limit the competition by raising capital needs. Why would they do it otherwise ? Nothing forbids them to do it (and even advertise that they're doing it), no need for a regulation for that.

"The FAQ says: "The Australian CFD and FX Forum is an industry body, established by Australia’s leading CFD providers". Seems they want to limit the competition by raising capital needs. Why would they do it otherwise ? Nothing forbids them to do it (and even advertise that they're doing it), no need for a regulation for that.[/quote]

Yup

Ever heard of a little thing called "profits"? Or do you think brokers don't make any money and are instantly exposed to to going bankrupt the few times someone happens to win a trade? Who do you think earns the spread?

And what's this shit about brokers betting against clients? Why the fuck does anyone think this means they actively enter trades that are opposite to client trades? All they have to do is pass the bulk of the unbalanced position upstream to their LP and take their slice of the spread padding they emit to your trading platform. And that's assuming retail traders ever come to a consensus on a single direction.

The only "bet" they need to make against clients is that if they do nothing the clients will burn their own accounts down to nothing, and that's a bet they'll nearly always win.