Thursday, February 19, 2009


I can remember when I first heard of Credit Default Swaps how I spent hours looking for an explanation as to what exactly they were, how they worked and what attracted people/companies to them.

I'm having the same experience now with Contracts for Difference. I'd never heard of them until ... was it the weekend? Monday? I can't remember, but very recently. And, to be honest, I'm stunned that such a product exists and that the stock exchange allows it.

At least with the CDS I could see the logic of how it came about, as a hedge on risk. {Of course the CDS soon morphed out of all recognition and became a big part of the bankers' boondoggle.} From what I can make out CFD's exist to (a) allow traders to avoid paying stamp duty, (b) allow traders to trade with very little down (up to 50 times the cash outlay!) and (c) to allow investors to take positions in a share without having to declare that to the Exchange. On all levels this just seems wrong.

In 2006, according to the Sunday Business Post, 50% of all trading on the Irish Stock Exchange was accounted for by CFD's. 50%. I must have been asleep. I can't believe I never heard about this before.

I guess that's what happens when you pay too much attention to war or baseball or your family - you miss out on a chance to make serious money taking others for suckers.