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Idle Curiosity
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Joined: March 28, 2011 12:51:32 UTC
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If I sell [corrected] a single share for $1, I have a possible loss of $9 if I'm wrong, so Intrade would require that they hold $9 of my money until the contract closes against that possibility. Three questions immediately come to mind:

1) What does Intrade do with that $9 while they hang on to it?

2) Assuming that wherever it is kept, it earns interest, does Intrade keep that interest, or would I have a legal claim to it?

3) Given the ongoing trouble with MF Global, what legal assurance does Intrade offer that funds held in margin are kept separate from Intrade's own accounts?

Thanks.

This message was edited 1 time. Last update was at November 28, 2011 11:53:08 UTC

nmanus
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correct phrasing:

"If I sell a share at $1, I have a possible loss of $9 if I'm wrong"
ChrisVanNiekerk
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I would expect Intrade to generate interest with the money. Why wouldn't they?

You have no claim to that interest. Basically Intrade which is an exchange acts as the clearing house for a transaction between two parties.

By generating some income through interest, Intrade can offer its users a very low monthly fee with no additional expenses. It's a great business model!
gsgs
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Joined: March 10, 2011 16:41:47 UTC
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Irish government bonds ?
Domer
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I'm not so certain that the funds generate interest; in the US the funds would be untouchable (you can elect to have companies put it in a money market account, for instance, and it would generate interest). What MF Global and similar companies did (mixing customer funds and company funds) was grossly illegal and whoever was responsible will be facing serious prison sentences. So what you are suggesting would be a felony in the US, and probably also in Ireland. The moneys are probably held in a non-interest bearing transactional account. It's possible that it is in an account that bears interest, I am not completely aware of Irish banking laws, but it would surprise me a bit. Keep in mind that accounts don't bear interest just by magic; if it bears interest, it is because there is risk associated with the account.

But to come back to the OP, I would be very interested in finding out where our funds are located. Hopefully they can let us know.

This message was edited 1 time. Last update was at November 26, 2011 17:34:52 UTC

AlfonzoBSwanzo
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"You have no claim to that interest"
"The moneys are probably held in a non-interest bearing transactional account"
Guys, these statements aren't true at all: it is normal for funds in margin accounts to earn interest. Intrade accounts are denominated in USD so the rate would be essentially zero right now, however.
I concur that Intrade ought to provide an audited financial statement.

This message was edited 1 time. Last update was at November 26, 2011 21:06:56 UTC

gsgs
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MF Global was regulated in USA

searching google :

... Ireland-based, un-regulated InTrade prediction markets ...

In 2005 Tradesports applied to the U.S. Commodity Futures Trading Commission for
permission to open a regulated futures exchange in the United States
In July 2008, not having an official decision, Intrade sent a letter to the Commodity Futures Trading Commission asking for clarification of the legal status of intrade.com and its executive leadership in the United States, saying "While Intrade serves a global community and has registered members from 162 countries, our 82,000 plus membership are predominantly resident in the United States ... it is perversely unclear as to whether Intrade, and indeed myself, are considered persona gratis by the United States."[12]

It's not properly rigged because there's no regulation

Because online gambling is outlawed in the United States through federal laws and many state laws as well, most prediction markets that target U.S. users operate with "play money" rather than "real money": they are free to play (no purchase necessary) and usually offer prizes to the best traders as incentives to participate. Notable exceptions are Intrade/TradeSports, which escapes U.S. legal restrictions by operating from Dublin, Ireland, where gambling is legal and regulated[citation needed], and the Iowa Electronic Markets, which operates from the University of Iowa under the cover of a no-action letter from the Commodity Futures Trading Commission and allows bets up to $500.

(in part thanks to the fact that it's very hard for people in the US to get money into the site due to gambling restrictions

Read more: http://webcache.googleusercontent.com/search?hl=en&gbv=2&q=cache:XBMJ4vpJprMJ:http://www.businessinsider.com/the-truth-about-intrade-2011-11+%22intrade+is+regulated%22&ct=clnk#ixzz1esW9UeDp


It's an entirely different type of regulation, and is actually illegal here.

http://www.intrade.com/aav2/safeFunds.html
Your funds are held in segregated accounts with banks in Ireland,
at National Irish Bank and Anglo Irish Bank
Regulation: The contracts listed on our exchange are not considered investment instruments
in Ireland and therefore we are not regulated in this jurisdiction.

--------------------------------------------

Credit Default Swaps of Anglo Irish Bank currently trade at 1800. I couldn't find
National Irish Bank, but presumably they are not much better.

---------------------------------
OK, it belongs to Danske Bank
CDS on Danske bank are at 310 which is not bad these days.
http://en.wikipedia.org/wiki/National_Irish_Bank


This message was edited 1 time. Last update was at November 28, 2011 15:48:28 UTC

Domer
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AlfonzoBSwanzo wrote: "You have no claim to that interest"
"The moneys are probably held in a non-interest bearing transactional account"
Guys, these statements aren't true at all: it is normal for funds in margin accounts to earn interest. Intrade accounts are denominated in USD so the rate would be essentially zero right now, however.
I concur that Intrade ought to provide an audited financial statement.


Yeah it is normal in a US brokerage account for the customer to make interest on idle funds because the idle funds have the option of being put into money market funds, a low interest-bearing (and low risk-bearing) instrument. The company where your account is held isn't making money off of your idle funds, though. These are transactional accounts where every customer must have access to their money at all times; the company can't put your money into instruments that bear risk without your approval and they definitely cannot mix customer funds and company cash.

It's also important to differentiate the two margins you are talking about. Investing on margin in a stock brokerage account is being able to invest more than your current cash. Margin calls can be made on those accounts. Margin here is something different altogether. You cannot invest more than your account is worth and margin calls are impossible.

This message was edited 1 time. Last update was at November 27, 2011 19:16:47 UTC

Idle Curiosity
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Joined: March 28, 2011 12:51:32 UTC
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nmanus wrote: correct phrasing:

"If I sell a share at $1, I have a possible loss of $9 if I'm wrong"


Thanks for the correction -- you're right, of course.

For those wondering, I ask about the interest because, as a few other comments have mentioned, most brokerage accounts will pay interest on cash.
Intrade
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Intrade is not regulated in the United States - we're a registered company here in the Republic of Ireland and we operate in full compliance with Irish and European business laws.

Member funds are held with National Irish Bank, which is the Irish trading name of Dankse Bank, a large Danish bank. Member funds are also held with AIB Bank. All member funds are held in accounts separate from the companies operating funds.

We are working at present with our lawyers to set up a trust type situation to further protect member funds. Members funds bank accounts are included in the scope of our statutory audit. As a private company we do not publish our audited financials.






This message was edited 1 time. Last update was at November 30, 2011 12:06:00 UTC

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