Please refer to the recent news regarding Nio before posting. The SP in the short term will come down.
N.b
Still a great long term hold
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I’ve been in NIO from early last year with it’s ups and downs. An imminent crash is 100% what’s not happening. What will follow is what’s called hype elasticity which is around 2/4% usually after good news. That’s not a crash
Why am I not able to hedge my position any longer on SP500???
@tobiacassandro it’s a risk management strategy from Trading212.
If a customer buys 1 CFD in Tesla, T212 will sell 1 CFD in Tesla. Essentially, taking the mirror image of the customers trade.
Remember also, when trading CFDs you are basically taking a loan from T212.
Customers keep buying CFDs and keep winning! T212 will keep taking mirror image positions and keep losing. Eventually they will run out of money to loan to customers. So they’re limiting the ability to buy CFDs, increasing spread, changing leverage, increasing interest.
Trading212 is a business, and remember - the house always wins.
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I believe the model is a bit different, when the client opens a position with margin, the broker has to keep a collateral of 1.5 times the loan value. With more positions being opened, the broker will hit the limit of their available collateral unless the increase the capital. The broker does not lose when the client profits, but the broker’s profit is kept on hold until the client closes their position.
I didn’t realise it was 1.5, I thought it was a direct 1:1 hedge.
What I meant by ‘lose’ is if clients keep gaining profit, T212 will see the reverse. They don’t have infinite money so will no longer be able to support the CFD side if customers keep profiting.
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And by collateral, I mean protected real money in a bank account.
Yes that makes sense.
So I am unable to match my short position at the moment and limited to only putting a quarter of it as a hedge.
For the last year I’ve been able to match my total short positions as a hedge and now suddenly in the last 48 hours I am unable to?
That seems rather odd if you ask me.
That sounds about right.
Everybody is going long. And everybody is profiting. The market is in a bubble, especially tech. So t212 limited the ability to buy long positions.
Some brokers (IB for example) do not allow you to hold opposing positions at all.
But the rules changed in the last 48 hours. With no notice or warning. That’s insanity. Daylight robbery. Again.
Why am I not surprised?
And meanwhile, what does that even matter??
My guess is that it is more like if a customer buys 20 CFD in Tesla, and another customer sells 18 CFD in Tesla then T212 buys 2 CFD in Tesla, from a third party who sells CFDs with a smaller spread than do Trading 212 (or they buy 10 shares if the CFDs are on 5:1 leverage). They profit because their cost due to spread when buying and selling their own position in 2 is offset by spread earned on client positions in 38.
The problem arises when it is not 20 and 18, but 38 and 0 because all clients expect Tesla to go up. Now T212 has to buy 38 long from the third party and so incurs greater cost per contract and requires more capital. The only way to throw sand in the works and reduce exuberance is to limit long positions or increase spread.
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It means it will not be a surprise if T212 decided to stop hedging altogether.
I dont think they will stop hedging as that is were the money is they just need to ride out this bull market
This seems like a more sensible approach indeed! Offset persons against each other and fill the deficit yourself where necessary.
I think from reading their accounts in the past I remember them saying they have a net zero exposure model i.e. total hedging.
Also I’m sure I remember somewhere them saying they hedge using the actual shares although I guess it could also work with CFDs.
So to make things work for both T212 and clients they need to attract balanced exposure on buy and sell sides. Suppose long on Tesla and was offered with 1:2 leverage, but short was offered on better terms of 1:4. If this were to incentive one client to go short for every two that go long then T212 would have balanced exposure and not need to incur the cost of hedging the net difference with a third party. Dynamic leverage could make things work better for all but be difficult to implement in practice.
Another possibility is “asymmetrical spread”. Note that one can essentially close a short CFD position by borrowing the money needed to buy the underlying stock in the leveraged amount. Once that is done the owner of CFD short and long stock is indifferent to price movements. This means there is a hardwired price relationship between CFD prices and share prices, depending on cost of borrowing money.
Suppose a long position can be closed at stock bid price -5, but short positions can be closed at better terms of stock ask price +1. If this is done with sufficient aggressiveness it should provide a bias favouring short positions that is large enough to overcome the exhuberant client prejudice that the price is surely going up and that long is the only game in town. I guess something like this is what happens in practice when setting bid & ask of a CFD.
Good in theory, but:
- Some (or may be many) are using CFD to invest rather than trade, and they are unlikely to take short positions. (that is possibly why T212 started to close accounts)
- Very few would take the risk of shorting stocks like TSLA, AAPL, MSFT,… at present, the market is bubbling.
- I don’t know if the leverage or spread can be adjusted differently for the short and long position.