GameStop: Is it a game stopper? – Guest Editorial

By Meir Velenski CEO of Velenski Financial Group. Meir is an industry expert on FX and CFD trading and a consultant to firms in this market.

Reddit, Robinhood and GameStop all have caused mayhem in the market place during these past 10 days. Who would have thought that an IPO of $17.00 GameStop would be so manipulated in one month to cause major marching calls across the globe?

Who heard of GameStop before this week? It is crazy that it has become a household name, and synonymous with the crashing of trading platforms.

Trading in fast markets

I have referred  to trading in fast markets several times in various articles and how spread betting firms like IG Group, CMC Markets and City Index, along with spot FX companies handle themselves during these times .

What is a fast market?

A fast market can occur in both bull markets and bear markets. It is more common in a bear market as fear drives wild drops in prices .
Therefore, a fast market is where prices and volumes jump dramatically to the extent where opening or closing a trade cannot be executed as the price keeps moving very fast.

This means that the retail trader who has access to markets only via his platform provider, usually retail spread betting, CFD or FX brokerages is subject to their back office IT departments being capable of coping and that the computers are set up to work properly during such load. Well that is being questioned now.

It appears that some firms, for example IG Group just over a week ago, could not cope at all and their platform crashes for hours. This means simply that the retail trader in a fast market has no access to his open positions and cannot take any action .

In addition and perhaps to add salt to the wound, when the platform crashes, it is often the case that the same platform still works when the client is losing money as his production will close at the stop level. I may sound cynical but with it set up like this, a provider is guaranteed to make money!

Further impact on your profit loss balance

Let’s say that a retail client of a spread betting, FX or CFD brokerage has an open position and can see that he is in profit . This is a rare position to be in as spread firms and FX firms know that 87% of traders lose money but let’s say that a trader is in profit, and the trader has an open position in profit, then the platform crashes as it did with IG Group recently and the client cannot close his potions. All he can do is watch on the sideline as no one answers the phone.

All platform providers state that if the platform is unavailable the client can always call in, however IG simply did not answer any calls whereas CMC Markets for example did answer immediately. Quite a stark difference .

This ties in with FinanceFeeds ‘mystery shopper’ investigation around five years ago, in which several companies were contacted in order to assess their overall approach to customers. CMC Markets was outstanding during that particular test too.

So what can a trader do to mitigate his position?

Unfortunately , not much. The retail trader must try and select a provider that has a direct dealing number like CMC Markets for example and try and protect his position with a stop loss and take profit.

What can CFD and FX brokers do to help?

Firstly, as I have stated so many times, many retail brokerages around the world demonstrate customer service levels which are too low. They simply don’t engage enough with their clients by phone and see them as cannon fodder.

There seems to be a fear of calling existing clients and asking simply  ‘how can we help?’

This leads to another important subject that I will write about soon, but all these actions will simply differentiate between a leading firm and a follower. It’s very hard getting new clients but they are losing existing clients simply because they are out of touch.

Fast markets will be a strong characteristic now going forward. Diligent traders should contact their provider and ensure that they have direct numbers and name of a person to call. This will be essential for retail traders to support them during these volatile times.

The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.