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That's basically taking a short position on whatever the customer thinks they're buying, right? Whenever the customer wants to sell their position, you'd have
by mewse 8y ago
That's basically taking a short position on whatever the customer thinks they're buying, right?
Whenever the customer wants to sell their position, you'd have to pay them whatever the value was at that time, whether the position had gone up or down. Big risk, unless you're confident that the customers are going to reliably make terrible trades, on balance.
It might still be fraud maybe if you claimed to be performing a service that you're not performing, but if you actually told your customers that you were doing it (as in the situation you ask about), then I can't see how it could be breaking any laws. And I'm not certain why your customers would even care, and might even prefer it, due to the "get 10% back if you lose everything" clause which you don't get with normal day trading.
- thaumasiotes 8y agoThere are laws against naked shorting, even when you've personally determined that the stock will tank as evidenced by the fact that an idiot is buying it. There are arguments that naked shorting should be allowed, but it isn't allowed right now.
- ycombobreaker 8y agothe parent poster means simply betting against their customers. Not explicitly shorting a security without a locate. Just a lingo thing. In any case, this sounds a lotvlike a Contract-for-Difference type of arrangement. The broker functions as the liquidity provider, taking the contra side to all customer bets. Broker collects the bid-ask spread and hopes that it overcomes losses. One big downside is counterparty risk: if the broker goes bankrupt, the winning customers may not get paid!
- ddebernardy 8y agoI've read sensible arguments about why shorting is ok. I've yet to read any sensible argument about why naked short selling is ok. Mind elaborating or giving a few references?