The Secret Broker: 50 Ways to Leave Your Money. (You don’t have to be coy, Roy)
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
I had to go to a family function the other day, which included meeting a few of the relos and one of them was a mad share-punting nephew.
When I say a mad share punter, he was actually a lower grade CFD (Contracts for Difference) punter, which in my eyes made him straight away a bit of a wannabe or some other word beginning with a W.
Bit of a red flag to an old-fashioned broker.
Anyway, he was very enthusiastic about how he was adapting his computer gaming skills into day trading.
“Dreaming big on the way to becoming a superstar day trader,” was what he told me when I asked him what trading strategy he was using.
I sarcastically said: “So you’re not using the time old classic buy low, sell high strategy then?”
“No,” he replied. “It’s all in the charts, you see.” Then he took me on a tour of his Playstation room, now converted into a dealing room/bedroom.
He had the gaming chair and matching headphones, complete with speakers. Instead of Grand Theft Auto V, there were five screens showing charts and moving prices.
He walked me through this plus commodities, index futures and crypto. All were supplied to him via his CFD provider.
The first thing that struck me, when I asked him how much it cost to get all this live info, was him telling me it was $22 a month for the ASX feed and nothing for any other live feeds.
Typical Australian monopoly rules. The ASX charges a fee and 17 other exchanges give it all away for free.
This is why stock forums have a 20-minute share price and announcement release delay – it’s free. But you have to pay the ASX if you want the live data.
I could see why the shift from gaming to day trading was to him a natural move, as there was so much going on.
My mind slipped back in time to when a share punter either had to phone up for prices or use the Teletext function on their TV.
We had action on the floor but all the other share punters were entertained with the closing prices printed in the next day’s newspaper.
Now you’ve got 19 different markets, with a CFD provider making a two-way price in them plus they are giving you some margin, so you can leverage yourself up.
The Paul Simon song ‘50 Ways to Leave Your Lover’ popped up in my head but this version was ‘50 Ways to Leave Your Money’. Hence the title this week.
Just buy a CFD, Lee. Don’t get yourself court, Short. Don’t touch Soy, Roy.
You get my riff!
The icing on the cake was that they will also make you a price in Bitcoin. They couldn’t even leave that one alone.
No wonder people lose so much trading CFDs. Watching his screens was like Las Vegas on steroids.
No need to panic though, as it appears that the ATO treats individual punters using CFDs as “presumed to know what they are doing” So in their eyes it is not gambling.
Gambling would be tax free but CFDs get added on to your income or deducted if you make a loss.
As today is 30th June, I thought I should throw this bit of info in.
I must admit that I was a bit taken aback with the amount of information that a single person could get from one market maker.
I’ve recently been approached by a company that has used AI to come up with an algorithm for trading markets like these. They asked me where they thought they should start.
“Apple,” I said over the phone. “Start with Apple.”
It’s the largest company in the world, has oodles of cash and is one of Buffett’s largest holdings. And it starts with the first letter of the alphabet.
Two weeks later they came back to me with an algorithm on Apple shares, which shoots out buy and sell signals, all by itself.
Next they tell me that they will be able to enable it to put these orders for you directly, so I don’t even need to be up all night watching screens.
Their bot will do it all for me.
“Yeah right,” I thought. “I’m not going to leave my hard earned with a robot, so it can push the buttons for me.”
Now, I wouldn’t. But nephew would.
I’ve seen so many of these types of systems come and go and I just keep plodding along with my box standard shares. The tortoise and the hare is what I tell Mrs B, every time one of these opportunities comes along.
To really nail my point in, have a look at TradingView.
They have 50 million traders from around the world signed up with them and you can subscribe to 1000s of trading strategies and algorithms.
No wonder you can have days where CBA can move two dollars and RIOs can shift up and down by three dollars.
In 1992, you would be lucky to see CBA’s volatility move past 20c or so. You had enough on your hands dealing with mining and technology shares at the spicey end of the market and the characters who headed them up.
Back to my nephew, who tells me that it costs him $7 per in and out in the CFDs he is trading, which is more than some of these online stockbrokers charge.
So, it would seem that not only do they make money on their buy and sell spread but they also charge you per trade. Plus if you hold positions overnight they charge you interest.
It appears that after CFD account holders were able to lose more than their account balance, ASIC stepped in and changed the rules. How about this for a stat from the ASIC announcement in the rule changes:
‘These leverage ratio limits and other changes are being introduced after ASIC reviews conducted in 2017, 2019 and 2020 found that most retail clients lose money trading CFDs. For example, during a volatile five-week period in March and April 2020, the retail clients of a sample of 13 CFD issuers made a net loss of more than $774 million.’
You can read the full statement here.
Just shows how much Australians can be mug punters. Who needs to be hacked when you can open a CFD account?
All of this reminds me of the joke about the CFD trader who wins $5m in the lottery and when asked what he was going to do with this money, he said he will just continue trading them until it has all gone.
On that note, I will leave you to grapple with your tax return requirements, whilst I will be adjusting my cost base on all of my dividend reinvestment holdings.
Happy June 30!
Feel free to contact him with your best stock tips and ideas.