Messages

Do you like to dance?

Well then, could you go dance so I can talk to your friend?

make sure they hear your accents and you're sorted 

This is another reason i'm not making the trek to Cork...off the drink and a rake of rough Cork women hanging about clinging on to my every, incomprehensible, word (the girlfriend wouldn't be too impressed!)

You and the boys should have a read at some of these on the way down the road (though the ladies won't understand them anyway):

http://gaaboard.com/board/index.php?topic=7310.0

My favourite...

Approach a girl in a night club with some chat up line (can I buy you a drink or something), she says 'no'. You then say to her 'I'm sorry you must have misheard me, I said I am going for a shit' 

Or if all else fails just slag off Gerald McCarthy!

9-5 hard luck Joe

Latest:

Joe Swail (NI) 5-3 Ali Carter (Eng)

81-9 0-90 (89) 44-45 103-10 (60) 83-16 63-49 66-18 0-78 (54)

* resumes at 1900 GMT

Joe is in a great position but I hope the nerves don't get the better of him tonight.

Looks like you called it right.  He's 8-5 down now and not looking good.  Carter has just broke off in prob the final frame

I think I heard Peter Quinn say one time that Adrian Campbell was the msot talented footballer he played against

Maine wrong.

The stable man was the Duke of Wellington?

Is it some sort of trick question so? Does part of Alaska constitute the most easterly part of the world or something, near the International Date Line? Because Maine is the most easterly of the mainland states

This must be it

What phone have you got FP? A Nokia N95 is it?

I have a Sony Erricsson k810i.  A similar thing happened whereby I couldnt get into my messages at all (inbox, outbox, drafts or anything).  Had to bring it in to the shop.  They said it was a problem with software on it.  They fixed it anyhow.  But I lost the phone, got a new one, and a week later same thing happened again!

Your problem sounds a wee bit different though.

On a different note I made some butternut squash soup tonight.

The lady got the QI book of facts there.  I would recommend it as a read.

How many commandments are in the bible?

Great - finally Fermanagh wins something 

I seen the word

You're a LIAR

Neither he nor the CFD house own the shares?
They are all borrowed from a Brokerage??

I think this is likely to be correct in most instances.  A hedge fund or potentially an institutional investor may lend the shares to either the CFD house or the investor himself

a. 25% is a serious stake in any business, who owns the voting rights? Mr. Q, CFD House or neither.

The voting rights with be with whoever bought the 25% stake. If the CFD brokerage borrowed the shares from a hedge fund, the hedge fund and not the CFD house will have the voting rights.  Someone with a long or short position in the CFDs does not own the shares nor have any of the attached voting rights.  

CFD investors are not required to divulge shareholding details. Rather the intermediary responsible for the CFD (e.g. a brokerage or a hedge fund) is required to declare their own involvement.

However, the CFD investors may essentially have full control of voting rights through the intermediary, without actually owning the shares.  Investors can fairly easily convert CFDs into underlying shares courtesy of the counterparty, which holds the stock to hedge its exposure.  In this way, investors can build a significant stake in a company in secret and at a lower cost than if their intentions were known to the market.

b. Does the brokerage buy the shares as part of the transaction or do those in the transcation (Mr. Q and CFD house) have to find a brokerage that happens to hold shares in the desired company?

The ultimate party on the other side of the CFD transaction will have bought the shares be that a CFD brokerage or a hedge fund.  That transaction will be separate to any subsequent CFD trades but the counterparty will buy/sell shaes in the company to hedge the CFD positions it is taking out

c. How does this type of transcation typically expire? With the Mr. Q type owning the shrares? Or is it merely a gambling exercise and the shares are always owned by the brokerage.

It is gambling plain and simple.  With CFDs as the shares are not actually exchanged there is no stamp duty. Making it "cheap" gambling (mixed in with the leverage aspect which means greater potential gains/losses).  The shares are owned by the brokerage but I think the CFD provider may agree with you that you can convert your position into shares in the company.  Sean Quinn apparantly had a paper loss of €1bn on Anglo Irish which he unwound and converted into a 15% stake.  

There was also a lot of press because of the anonymity and the fact you can built up a anonymous quasi-stake in a company.  Outside of takeover periods the acquisition of CFDs is not a notifiable interest. However, the purchase of these instruments can enable a CFD holder to close that contract at a later date then purchase stock which was held by a counterparty in relation to that arrangement. Thus a stake builder can acquire very substantial amounts of shares quickly without making a disclosure until they have acquired well over 3% of the company's shares.

BogBall's post is a good summary

Mr A never buys any shares.  The CFD brokerage probably never buys in shares either. The CFD brokerage will borrow the shares from a company specialising in lending shares. 

- CFD brokerage borrows 50,000 shares from the lending house
- Mr A gambles that the shares will rise in value.  If the shares rise in value the CFD brokerage will owe Mr B money
- To cover its position the brokerage may thus buy shares in the open market (so if the value of the share price increase the brokerage will gain from the rise in underlying shares but lose from its CFD position, they will structure it so the two cancel out

Thus if the brokerage is trying to cover positions using shares in the market it may distort the share price.

Moreover, CFD's get bad press as it is often difficult to know how many shares in the market are freely traded (free float) as 50% of the shares may be traded and 50% may be "leant" to a CFD brokerage.

I am not an expert on derivatives and have been winging it a bit with all of the above so there may well be holes in my arguments

How would you feel if this was done with your house? 

I wouldn't really care less except that the trading in CFDs might distort my share price.

The shares aren't loaned.  Ownership of the shares never moves.

Example

I have a house worth £100k.  I own 50% and a CFD brokerage owns 50%. 

Mr A thinks my house price is going to rise. He can't afford to buy the entire 50% stake but he wants to maximise his return.  He therefore takes out a long CFD position with the broker.  The broker will charge him a margin of say 10% (£5k).  If the house price rises then Mr A will profit by the increase (less the margin/commission).  If the house price falls then Mr A can lose a lot of money. 

However, if the house price rises the value of my 50% will also rise and will be unaffected by what the CFD roker is doing with his 50% and vice versa with a house price fall.

The CFD broker, however, will not want to be exposed to fluctuations in the house price and will seek to lock in an arbitrage profit.  To do this he will either seek another investor, Mr B, who wants a short position or he will trade in the underlying shares (trading in the underlying shares could have a demand/supply impact and affect the value of my 50% stake).

Mr B thinks house prices are going to fall and so takes out a short CFD position paying a 10% margin (£5k).  If the shares fall in value Mr A will profit (less the margin/commission).  If the shares rise in value then Mr A will make a loss. 

The CFD brokerage will structure the transaction so that any losses on one side are covered by profits on the other side.  The CFD brokerage takes its commission and bears no risk.  The risk is borne by Mr A and Mr B.  I am exposed to falls in share price as I would be if I owned 100%.

CFDs are the same as spread betting but with no stamp duty.

The entire risk lies with Mr A and Mr B.  The advantage to them is that it allows them to leverage up and gamble on shares with smaller amounts (as they pay 10% margin not 100% face value).  This is good if they guess correctly.  But if they get it wrong their losses are magnified.

Sean Quinn's investment in Anglo Irish was a leveraged gamble that went wrong.  Ultimately it comes down to unneccessary risk taking and over-leveragin -> the trademarks of this recession.  In that instance it is not the fault of CFDs but of the people using them.  In more recent times you are correct in that it has exassperated the problem as investors have been taking on more and more short positions - gambling that the stock price will fall further.  This has created nervousness and market distortions.  However, this is more linked to human behaviour and a herd mentality than it is to weaknesses in the product themselves. 

Stock markets would be efficient if it wasn't for the humans that use them

Short selling is not the cause of the downfall of the global economy.  Neither is it the fault of the various financial derivatives such as Collateral Debt Obligations, Credit Derivate Swaps wtc. 

The problem ultimately comes down to irresponsible lending by the financial institutions.  Speculation plays a part but speculation is not what resulted in the Nationalisation of Anglo Irish.

When you have a willing buyer and a willing seller the fault can not be blamed at the product sold but rather the buyer or the seller and the information asymmetry that often exists.

There is very little difference between short selling and spread betting.  It is risk and return.  It can however distort the share price in instances and greater transparency is required.

Regarding Gold, whilst Gold is often the mainstay in tough times it seems to be at a pretty full value.  Gold historically was important as countries held reserves in Gold to support there currency and pre-Bretton Woods Gold was the currency of the world.  Nowadays less Gold reserves are held by Central Banks worldwide.

I would suggest buying Oil or OIl futures.  I think it is currently around $40 per barrel.  The majority of the Opec nations require a price of $30 to $40 per barrel to break even.  The price will not go much lower but once the global economy recovers, granted this may be another 18 months away, then global production will increase and global demand for oil will also rise.  Forecasts for oil prices are between $50 - $70 for oil this year alone.  Although granted no one forecast oil prices of $200 per barrel last year.  If you prepared to wait then oil is a good buy.

I am not authorised by the Financial Services Authority (FSA) to provide financial advice and therefore any one who acts on the above advice is doing so entirely at their own risk and their actions are independent of me and no liability can result towards me

Frank Lampard uses 5 Sams time machine (which is cleverly disguised as a hospital bed) to go back in time to meet his sporting hero (Frank Lampard) at a younger age