Last weekend The Australian had a report about the CMC Market's Australia Managing Director - David Trew having to take out an AVO (Apprehended Violence Order) for a client. I've heard pretty bad things (rumours only) about CMC Market's clients and CFD trading. Nothing substantial. I guess this client took it to the next level...
It's funny how the news report about David Trew and the frustrated CMC Markets client was written. The report actually made the front page of the broadsheet's weekend issue with a massive photo of David Trew himself. The report infers that there is something fishy going on but doesn't really point fingers. It highlights how one client has taken steps to vent his frustration of losing money from trading. Then it highlights how CFDs is a little "shonky"/"shoddy" because it isn't allowed in USA, and it was used by a collapsed broker. and I agree that contracts for difference are "one of the riskiest financial instruments on the market". They are a double edged sword. The article ends in a slightly twisted note of how Mr Trew is living large while this bloke is obviously suffering financially.
The question is... what next? It is a highly "known" fact (well people always mention it but there are no numbers to back the statement up) that most traders lose money. With CFD's those losses are multiplied because of the massive leverage which is readily available. If you lose money from trading - especially trading CFD's you are personally at fault. You must accept that you, and you alone are at fault. Because you must do your own due diligence. CMC Market's have an easy to read PDS which explains the risks. If you can't handle the risks, or take steps to prevent those risks from eventuating, then don't trade. When the losses come and you can't accept it or handle it - don't trade. If you can't confidently take a risk on the market with your money - don't trade. If you haven't educated yourself about sound trading principles - don't trade. There is no such thing as a lucky gambler on the financial markets.
Have you ever wondered what a Margin Call looks like? Here is an actual margin call notice from CMC Markets I had the benefit of receiving by email the other day. Why did I receive it? Well… I had recently withdrawn some money from my trading account, effectively taking some profits. Then a recent trade went against my position, so the account went into the red on the margin side because of the lack of funds.
If you don't know anything about CMC Markets, they are a market maker which means that for the financial products that they provide: namely derivatives of the CFD (Contracts For Difference) type, they derive their prices of their products from the market. They do this for markets like the Australian Stock Exchange (ASX), NYSE, NASDAQ and more. Because it is a derivative product, there are many terms and conditions that make this product work - too many to describe here. But here's an interesting thing to note: CFDs are legal in England and Australia among other places but illegal in USA. Go figure. (I think it has something to do with their options/derivatives markets)
If you do get a Margin Call from CMC Markets don't fret too much. They don't immediately do anything to your account. You just simply get continuous emails either on the hour or whenever the price of your portfolio/stock/share/forex trade or whatever dips against your position (either long or short) to negate your margin in your trading account. I do suspect however, once the debt, or the negative margin eats into the capital on hold they would definitely close off your trade in order to protect you and themselves from further losses. (However, don't take my word as gospel though - there is that inherent risk of the market crashing tomorrow - who really knows right?) The question in the back of my mind is that, what will happen if the market does crash, or the position your are holding does crash through your stop loss limit (if you had taken the time and spent some money to take a guaranteed stop loss (GSL) then you would be safe), and through the margin you hold in your trading account? What then? That's a pretty big risk if you think about it - it is a probable event, but in my opinion unlikely. (But of course, you must be prepared to take any of the consequences if you dare to trade the markets) CMC Markets are famous for their derivative product: CFD's
CMC Markets is officially back in business. Last Friday's occurrence was not a glitch. CMC Markets was under an ASIC review, from which, resulted in a new PDS which they released yesterday (Monday, 18th September 2006) which CMC Markets clients had to review before resuming trading. What I am not happy about is that CMC clients were kept in the dark and were not told of this review when their service was not available to open new positions.
Here was the FAQ email that CMC Markets sent out:
Dear valued client,
Due to an ASIC review of our current Product Disclosure Statement CMC Markets Asia Pacific is currently unable to extend or open new CFD positions on behalf of its clients.
What trading activities can I conduct during this interim period?
At present you may still place new orders for CFDs to reduce or close your existing CFD positions with CMC Markets.
You may still amend, cancel or replace pending stop-loss and limit orders.
When will CMC Markets be able to issue new CFDs?
We are currently working to issue a new Product Disclosure Statement (PDS). Once the new PDS has been issued CMC Markets will be able to issue new CFDs.
We anticipate this service will be available shortly.
Are there any technical difficulties with the Marketmaker® trading platform?
No. Your Marketmaker® trading platform is fully functioning to the high standards you expect from the CMC Markets service. However you are limited to the above parameters regarding your trading on Marketmaker®.
Can I trade over the telephone?
Yes, you may place orders (outlined above) over the telephone with our Sydney dealing desk. However, we advise that you use your Marketmaker® trading platform.
Yesterday (Friday), I was looking on opening a new forex position using CMC Markets as my dealer. I was using their CMC Markets Mobile Marketmaker platform when every order I put through got rejected. I had the perfect entry, the perfect setup. Then after 10 minutes, the forex markets had already moved too much out of my entry zone so I got a little irritated. I had the right trading margins and everything. So I gave CMC Markets a call. It was all due to a glitch. This multi-million dollar CFD market maker/dealer with a huge amount of volume was stuffed for the day. And I thought this CFD dealer was perfect in every way. I guess, for those traders looking for a bad aspect about CMC Markets, here it is.