Member Info for Prognostic

It’s an uncrossing trade, after the auction period. Lots of client trades all rolled into one.

@Matt. I wasn't brave enough to even attempt the short as I thought the market could continue to spark, but this stock heading back into the tank was the most obvious trade in history :). Kudos for having the balls to attempt it, even if unsuccessful.

@hautecouture. I was not and have not offered an opinion on whether the spread betting and gambling industries are moral businesses. That decision is for the individual to make. I also haven't offered an opinion on whether the freedom of individuals to gamble should be determined by the state. You seem to think I have offered opinions on both points.

What I have talked about is the way IG operates when it comes to exposure/risk management and the impact that has on clients, and if you think I got anything wrong do please educate me.

How do the likes of FinanceFeeds get away with reporting like that? There is a massive difference between the concept of B booking and being a systemic internaliser and the article seeks to conflate them to lump the bucketshops and the good operators together.

B Booking is basically the idea that you identify some clients as "good" traders (ie, those who will make money) and you hedge their trades. The "bad" traders you B-book, which basically means you don't hedge their trades. The goal is to make more profit from bad traders.

So, IG don't B-Book. They also don't hedge all trades. It should be obvious why: hedging comes with a cost, and if IG hedged every single trade they would lose significant profits. If you head over to IG and buy £2pp of FTSE, should IG go and buy £2pp of FTSE in the market? How exactly would they even do that?

The simple model: Figure out exposure limits for each product that you're willing to accept, and always hedge to remain within those limits. If one client buys and another client sells, your exposure is net zero. It's not b-booking to do that, it's bloody smart business. As you get smarter, figure out better hedging. If clients are all long DOW, and Short S&P500, to some degree the exposure nets off. But that's getting into exposure management that's far too complex, so we'll leave it there.

God I hate crap reporting, especially when it has the potential to impact me financially.

Hi Swanny,

I can't be 100% certain as I don't work for IG (full disclosure, I did for 8 years to 2019), so some of this is just guesswork, other is about knowing how they operate:

Re not allowing actual share dealing, this is the area I know least about, but it's likely to do with IG's access to the market. To buy shares on your behalf they need a trading venue and have to meet with the terms/criteria for that venue. It's entirely possible that they are simply not setup on a venue to deal with the level of demand for what is a fairly minor stock.

RE long not short, we don't know what IG's position is for a number of reasons. Firstly, IG tell you the number of clients with positions in a given direction, but not the magnitude of those positions. Second, IG could be hedged in such a way that they aren't exposed the way you think:
Example. Say IG's clients are £1000pp long FTSE. IG choose to hedge £800 of that, so IG's net position is now £200 short (client's are £200 long). Then clients sell £400pp. Client's remain long, £600pp. IG did no hedging trades, but is now £200 PP long, because they are over-hedged vs clients. They have no incentive to trade at this point, they don't care if they are long or short, just the magnitude of their exposure. But if we extend that to your example of this share, we don't and can't know IG's position.

RE client retention, I suppose that's a question for spread betting in general. Last I checked IG make more revenue from clients over a year old than any other provider (might need to check SAXO, they run a similar model). That data is public, pretty sure it was in the annual report, where they show revenue by year of acquisition.

Hope some of that is helpful

Too soon to tell IMO - depending on how the dust settles this could result in tighter restrictions on short selling rather than penalising the guy. Ultimately, buying this stock on its merits is a terrible idea, so how much do regulators want to squash free market dynamics?

You’re assuming they can hedge a long position, which I’m willing to bet they currently can’t in any effective fashion. They would run the risk of not being able to exit the hedge in the event the client closes the position.

IG obviously thrive in any market where lots of trades take place - their model is entirely about volume of trades and a balanced book. The only reason to suspend anything is internal risk management, and as is evidenced on this board, they will have taken the decision to cease trading this market knowing full well some clients will get disgruntled and leave.

Flip this on its head - what risk are other providers running right now to keep this open? Plenty of examples of poor risk management in the industry (Alpari during SNB springs to mind).

I’m baffled, enough so to make me make a first post.

IG’s model is simple. Run limited exposure to the markets, hedge when you can’t internalise flow, and make the bulk of your money from spread/commission. So far, so simple, and amazingly profitable. IG don’t care if you win or lose, if they can net off flow they win either way. It’s actually better for them if you win - you’ll trade again.

So why would they stop shorts here? Simple: they can’t hedge effectively, so there only choice is to internalise the risk. To everyone talking about 100% margin: on a short share trade, risk is uncapped, so that really doesn’t matter. IG can’t hedge, and the market could do anything. They also can’t let a client account go negative.

So to all those of you saying they are in the pocket of the hedge funds, or saying they are corrupt, consider two simple points.

1. IG can’t hedge effectively here, therefore any trades they accept will not be hedged and would be invisible to the hedge funds you think they are protecting.
2. This demonstrates sensible risk management and is the reason they will continue in business long after your uninformed money goes off to some bucketshop.

I topped up at 745. I’ll double up if it gets to 700. IG is, and will remain, by far my biggest holding.