Category Archives: Other

03 Feb

My Reply To ESMA

The European Securities and Markets Authority (ESMA) has proposed a number of measures to curtail the activities in the retail CFD trading industry.

What is the essence of the measures?

  1. Significantly reduce the margin availability on all speculative instruments (currencies, stocks, stock indices, commodities).
  2. A margin close-out rule.
  3. Negative balance protection
  4. Measures to stop certain kinds of marketing initiatives (bonus schemes etc)

ESMA has invited the public to respond to these measures, and I hereby do so.

What is the essence of my arguments?

  1. Draconian measures will drive the CFD industry off-shore and the current problems will be compounded. Yes, it will be removed from ESMA, but the problem will still be present.
  2. Much less is needed to achieve ESMA’s objectives.
  3. Negative Balance protection rather than margin changes.
  4. Binary Options has given a legit industry a bad name. Get rid of them (if you can).


My name is Tom Hougaard. I have been working in the spread betting/CFD industry for 18 years, both as a trader and as a strategist for a CFD firm. In my time in the industry the availability of the product range has exploded. CFD trading (and spread betting) has become readily available to everyone and accessible everywhere through our technological advances.

The product range has expanded to include instruments that deviates significantly from what I call trading. It is here I would like to start my response to ESMA.

If ESMA proposes to ban all Binary Option trading, I think the world of retail trading would be a better place for it. The Binary Option trading has been marketed as an exciting way to make money. The problem with Binary Options is that most people lose because of the way the product is structured.

As my university professor told me in his class on options trading: “statistically, most options buyers end up losing their premium”, which is an academic way of saying that you tend to lose when you buy options. It is the option “seller”, the person who collects the “premium”, who ends up winning – over time. Of course, you don’t have the opportunity of being the “seller” with Binary Options.

I welcome restrictions in the Binary Options arena, because I think the game of binary options is rigged in favour of the broker, who incidentally has every incentive of rigging the game in their favour. It is their algorithms, it is their infrastructure, and the industry is unregulated, so they can do whatever they feel like doing.

I am certain that the CFD industry is being tarnished by the reputation of the Binary Option industry, even though they have very little to do with one another.

The CFD industry has been in existence since IG Markets started in 1970. It lived through many ups and downs in the market, and it is still thriving today in 2018. Although there were losers (and winners) during the booms and busts of the last 50 years, this phenomenon has not been exclusive to the CFD industry. People can lose money on ordinary shares too.

The companies offering CFDs have exploded. They are based all over Europe and beyond. Some have an FCA regulation, some have a CySEC regulation. Some have no regulatory oversight at all. This has created an uneven playing field. Companies regulated by the FCA have had to toe the line and take a much firmer interpretation of the guidelines than its counterparties in Cypress, whilst watching competitors from other jurisdictions engage in activities which has created an unhealthy industry.

The result is that many people who should not have had an account have been able to open an account with firms under a different jurisdiction. I am not pointing fingers at a regulatory body, but pointing out that the villain here is not the product.

What we need is a healthy regulation. I welcome some, BUT absolutely not all, the initiatives from ESMA. I understand the need for regulation, but if you overregulate, you simply export the problem elsewhere.

My biggest concern is that if ESMA implements all their proposed changes to the CFD industry, we will invite companies from other jurisdiction to enter the market and fill the void left behind.

History has taught us that no void is left unfilled.  Alcohol consumption didn’t stop nearly 100 years ago just because a ban on the substance was introduced in the US and the stock market didn’t stop falling across the globe (and in England) when the FCA banned short-selling on the 19th September 2008.

I welcome some of the initiatives by ESMA, although some of them are biased towards favouring the client rather than taking a balanced view of the risk the broker has to undertake to run the business.

For example, the “negative balance protection” proposal is designed to stop a client from falling into debt to the broker. It sounds good on paper and on the balance of arguments I welcome it. Jurisdictions like BAFIN in Germany have already implemented this rule. It works. It would stop all of the disaster stories that has surfaced in the last few years.

Of course, it also invites the potential for “moral hazard” trading amongst clients because they know that their downside risk is limited. Still it is a small price to pay for the broker to remain in business, and the regulators wouldn’t have to witness retail clients losing more than they can afford.

If we introduce a European wide “negative balance protection” scheme, do we really need restrictive measures on margin availability? My argument is that we don’t, but I can understand the need for some regulation in this area too.

The average bet size in the industry is £7 a point. If I place a £7 bet on the Dow Jones Index, I currently need to have £900 on my trading account. If ESMA has their way, I will need to have £9100 on my trading account. The consequence of the implementation of the new margins can probably fall into two categories:

1/ the bet size possible will now be so small that no one wants to trade (ESMA will effectively have killed an industry)

2/ the client will seek other vendors who can offer the current margins (ESMA will effectively have driven demand from regulated companies to “cowboys” residing in jurisdictions where the regulatory framework leaves the trader with little or no protection at all).


My proposal is simple:

  1. Ban Binary Options (which you are unlikely to have success with because they are unregulated, and if people want to find the product, Google will help them) – or restrict their ability to advertise.
  1. Create Negative Balance Protection across the industry but liaise with the industry to create a common-sense measure, which addresses the problem without leaving the client or the broker at an unfair disadvantage
  1. If a margin reduction is still needed after point number two is implemented, which I dont think it is, then set margin at 100 to 1. Yes, there will always be “black swan” events, but they will be protected by the negative balance protection. For the vast majority of market moves the client will be able to trade out of the position or get stopped out by a stop-loss order.



ESMA, with the greatest respect, whether you like it or not, you are not going to be successful in your endeavor to reduce the impact of CFDs on retail traders. If your goal is to remove a product from European consumers because you think it is bad for their financial health, then where does it stop? The odds of winning the lottery is pretty slim, much worse than the odds of winning on a trade in a stock market index. Are you going to remove the national lottery too?

What about all the boys and girls that enter drama school around Europe, hoping to become the next big celebrity. Shall we remove drama schools too, because their school fees are high and the odds of becoming a famous actor is incredibly small?

Yes, forgive me for my childish examples, but I feel strongly about taking personal responsibility for my life, and if a man or a woman want to enter the CFD industry in the hope of earning a living and a hobby-income from it, then I fail to understand why anyone can be allowed to stop them from doing so. I know you are not stopping them, but you are in effect rendering the product useless with your proposed changes.

The main problem is that you will not be successful, and you leave the citizens of Europe in a potentially worse situation than before. You may be successful in reducing the desirability of CFDs in the European union, but it would be foolish to think that it wouldn’t result in a “cause and effect” response. Companies from other jurisdictions would enter the market to fill the void. These companies will not carry the same protection that we currently enjoy. You will most likely see many of the existing companies within Europe simply move their operation to another jurisdiction.

ESMA, you are right to do something, but much less is needed to achieve your objective.

Yours sincerely

Tom Hougaard

31 May

Trump presidency mean for Mexico

I got this from Mauldin Economics. It’s quite to the point, and it highlights how little power the president of the US in reality has:

Mauldin Economics: What would a Trump presidency mean for Mexico?

George Friedman: Very little. Mexico is the primary export target for California and for the entire American Southwest. If you disrupt that flow, you’re going to have a revolt from the western states like you’ve never seen.

ME: So the wall is not going to be built.

GF: The wall can be built, but what is it going to accomplish? The trucks had better come through. And this is really the problem.

You can read the rest here. It is short and to the point, well worth 3 minutes of your time…

Donald Trump

11 Apr

1-day course on trading techniques in London

Dear traders
It is a rare event when you can place two trading personalities at the same place at the same time. On the 28th May 2016 the legendary US trader Larry Pesavento and the Danish day trader expert Tom Hougaard will give a 1-day course on trading techniques in London.
It will be a long day, but not boring. The two have decided to split their time between them over a full day of education.

1-day course on trading techniques in London includes:

  • You get a course handout with the techniques Tom used to generate 38% in just 5 sessions.
  • It is the same techniques he used to generate 137% in one year.
  • You will get Larry’s book as well as being taught by the legend himself.
  • You will be on his alert email list for 30 days after.

Take a look at the complete day and book here

1-day course on trading techniques in London


1-day course on trading techniques in London

27 Jan

Art Cashin comment 27th January 2015

Art Cashin is sort of my hero on CNBC. I got his comment for today:

On this day in 1955, the police were called to the five story, Fifth Avenue, mansion of Serge Rubenstein. There they found the corpse of the controversial 46 year-old “Financier.” He had been strangled with a curtain cord. 

Rubenstein embodied in one man everything that would later be called “the sins of the eighties.” He was greedy. He was flashy. He was a raider. His operations were shrouded in mystery and covered by dummy companies. And he used the press to exaggerate his wealth, so that he could bump up his credit with gullible bankers. He had been the guest of presidents and potentates. And through it all most folks thought he was a real slime ball. 

In covering his murder, Time magazine felt he had so many enemies that, with only a little tongue in cheek, Time congratulated the New York City police on having “….narrowed the list of suspects down to 10,000.” It never got narrower. 

To note the date, stop by a dimly lit bar and sip a Black Russian. Try not to make any friends and don’t pay cash. But stay away from the curtains. 

Stocks didn’t get strangled Monday. Instead, they were run over by a speeding salt spreader, as states, cities and organizations hunkered down for a classic blizzard. Mother Nature, trickster that she is, moved the storm further offshore than models had projected. That led to snowfall less than one-third of the worst estimates. 

Nonetheless, as I write this in the pre-dawn hours in lower Manhattan, Wall Street is a ghost-town. No traffic. No papers. No coffee and almost no people. New York lives through its subways. It may be hours to get them back up and running. 

Markets Shrug Off Greece For A Pre-Storm Navel Gaze – The stock market swung in its narrowest range for any session this year. In the morning, they thought about oil, but seemed to become distracted, perhaps, by the severe storm warnings, in the afternoon.


In the U.S., stocks opened down and spent the first 20 minutes of trading going lower as crude sold off and looked like it might have one of those freefall sessions. 

Shortly after 10:00, the oil price headed back toward neutral and stocks followed suit. Around 10:30, I sent out this brief synopsis: 

Early weakness takes S&P down below the 50 DMA (circa 2047).  It rebounds to that level as WTI seems to stabilize. 

For the balance of the morning, stocks drifted up, achieving a mild move into plus territory around noon. I sent this follow-up: 

Oil ticks up slightly, allowing equities to get back near neutral and maybe better.  Run rate at noon projects to an NYSE final volume of 690/770 million shares. 

Trading desks may thin after 2:00 but believe skeleton crews have rooms in the city. 

(Some late day shuffling raised the NYSE volume to 805 million shares.)  

Afternoon saw a bit of a separation between stocks and oil. In fact, as previously noted, there seemed to be a separation between stocks and everything else. It may have had something to do with the growing intensity of the storm warnings. 

All scheduled athletic events were cancelled. All Broadway shows were cancelled. Officials talked of shutting subways and roads. Traders who had not secured a room in Manhattan began leaving early for what looked to be an arduous journey home. 

A market on close buy program with over $300 million to buy on balance allowed the bulls to slip into the close with moderate ease. Then, off to imbibe some anti-freeze and prepare for the storm.

Earnings Season And The Dollar – As we kick into the heavy release of earnings season, the early results have been less than stellar. One cause (excuse) cited by many of the underperformers is the strength of the dollar. 

If that continues, and I believe it will, it will probably stay the hand of the Fed, or at least postpone it, possibly into next year. 

Drone Strikes In The Currency Wars – There was very sharp whipsaw trading in the Swiss Franc overnight. Some contend that the Swiss National Bank may have tried a quick surgical intervention. Whatever the cause, the unusual hyper-volatility in foreign exchange markets is sending a distinct chill that has nothing to do with a blizzard. 

Maybe It Was A Tape Delay – While markets seemed to have shrugged off Greece’s election yesterday, they seem to have renewed focus today. Here’s a bit from my friend Peter Boockvar over at the Lindsey Group: 

Markets swept Greece under the rug yesterday but Greece is again sticking their head out. Greek bonds and stocks are again getting hammered. The Athens stock market is down almost 5% with National Bank of Greece, Piraeus Bank and Eurobank Ergasias all down more than 10%. The 3 yr note yield is higher by another 214 bps to 14.2% after yesterday’s 197 bps spike. The upcoming discussions between the new Syriza leadership and the Troika will not be a kumbaya moment. As Greece wants to stay in the euro and needs money for upcoming maturities (3.4b euros to the IMF in February and March to start), the only outcome is a net present value haircut to their debt, not a nominal one. With Greece then paying a lower interest rate and longer maturity than the other countries bailed out (which they already are even before another adjustment), I’d not be happy as a citizen in one of those other countries. The Troika will also likely ease the austerity/budget deadlines with which Greece was supposed to comply with. German finance minister said “there are rules, there are agreements. New elections change nothing.” Alexis Tsipras said “there will neither be a catastrophic clash nor will kowtowing continue. We are fully aware that the Greek people haven’t given us carte blanche.”

Consensus – Hyper-volatility in Swiss franc and renewed concerns on Greek banks have markets rather edgy. High dollar dings earnings in some of the bluest of blue chips have futures taking a pounding. Also, vague rumors of a possible massive layoff from a big blue chip circulate. All may be a topic as FOMC convenes. Stick with the drill – stay wary, alert and very, very nimble.


12 Jan

Art Cashin says that…..

Whipsaw Week Ends In Another Leg Down – Equities got hit from a variety of fronts on Friday. There was the payroll data that looked terrific at the headline level but under further review had some deflationary undertones. Then there was the price of oil, whose continuing weakness suggests global slowing. Add in the carnage that showed up in European markets and you can see how the bulls faced an uphill fight that was nearly vertical.

The payroll numbers showed solid increases and last month’s jump in payrolls was even revised higher. The brief initial reaction in bonds seemed to buy into the concept that the higher payroll numbers meant the economy was kicking into high gear. In a few minutes, however, the boys in the bond pits began to see the drop in wages as possibly deflationary and yields went into negative territory.

Meanwhile in Europe, with the Parisian terror situation as backdrop, stock markets sold and then plunged. For purposes of comparison, let’s look at some of the European closes converted into Dow equivalent points: France -340; Germany-346; Italy -585; and Spain -700. Not a lot of help from our friends across the pond.

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