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Online Share Trading

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LONMIN CFD

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Galuc
Super Contributor
Why is the gearing LONcfd have a gearing of only 2.84, where most other cfd's are at around 10? Even acl is 8.25, am I missing something here?
32 REPLIES 32
Not applicable
tells you everything you need to know about this stock. The margin required is a function of the volatility of the share. The counter party (OST) will want to avoid a margin call if possible, so they make sure they have your position covered for most scenarios. Right now, they are pricing in the possibility of a 40% swing on the stock, but setting the margins at the level they have (if my calculations are correct?)
THRESHOLD
Super Contributor
AGL is volatile as all hell and has a CFD ratio OF 13:1. LONMIIN was almost 1:1 a little while ago. Forced me to take all shares - probably a good thing. I suspect it has to do with the contract not following the share consolidation. Ask SBG! I would be interested to know.
Galuc
Super Contributor
You mean the gearing fluctuates on the individual cfd depending on the companies status quo, that doesn't make sense?
Not applicable
doesn't it? Why not. Think about it from the counter party's point of view. They lend you script which you promise to buy at a later date - you place a margin as security. Now if your position value drops below your cash balance - you will have a margin call made - i.e. you owe them more money than what is in your account. Now they have to actually go get this from you somehow - which will involve lawyers' blah blah blah. So naturally they want to be able to take action long before you reach this point. They do this by building sufficient fat into the margin they set. Now the more volatile the share - the bigger the margin.
Preston
Super Contributor
@skaap, Get the direction of the script correct. Are you going long or short? Different scenario, different result!
Not applicable
damn dude - you are bright. They teach you that in that fancy CFA course you failed - or did you figure it out all by yourself.
Not applicable
or perhaps ... you just missed the point of the thread, wouldn't be the first time though
Preston
Super Contributor
@skaap,Ignoring your withering sarcasm, bank do not rely on margins to protect themselves, In worst case scenario, bank hedge them via the "delta". You should try CFA, it will help you to think outside the box.
SimonPB
Valued Contributor
they hedge a CFD via delta ?? explain ??
Preston
Super Contributor
@simon, let me answer your question, with something you told me on this forum. What did you mean when you said that " IG market do not hedge themselves and they pass 100% of the risk to the customer", unlike SBK.
SimonPB
Valued Contributor
no preston, answer the question, then when you done answering you get to ask one ..
Preston
Super Contributor
When price movement is adverse, bank will physically go into the market and buy the share.
Preston
Super Contributor
When price movement is adverse, bank will physically go into the market and buy the share.
Preston
Super Contributor
When price movement is adverse, bank will physically go into the market and buy the share.
Preston
Super Contributor
@simon , your turn?
SimonPB
Valued Contributor
based on what, delta? coz a CFD has no delta, that a function of an option (black scholes) ? if anything a CFD delta is 1 hence they hedge 100% right up front .. futures delta slightly below 1 as they bill the interest up front .. Q is do they do it individually for the client or the stock and net off ? still no delta ..
Not applicable
you do know that OST has direct market access right? Look it up in your CFA text books and come back to us to advise if your theory still holds water here
SimonPB
Valued Contributor
well firstly it actually two Q's / issues .. bigger issue is I believe little you attribute to me (you have admitted here to making things up about me before) .. so I couldn't be bothered..
Not applicable
just to avoid multiple thread confusion - my DMA question is directed at Preston