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posted by n1 on Sunday May 24 2015, @02:11PM   Printer-friendly
from the justice-is-blind dept.

Nainder Sarao sits in jail because he cannot raise the £5M bail that is required for his release. He has apparently made millions while living in his parents' basement, but doesn't have access to the money because his accounts have been frozen. What is claimed by US authorities is that "... Mr Sarao placed "spoof" trades in E-Mini S&P derivatives in a bid to push the market in his favour. The orders would be placed and withdrawn in rapid succession using a customised computer programme, they allege", which sounds a lot like high-frequency trading. Perhaps his real crime was to copy the techniques of wealthy high-speed traders?

 
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  • (Score: 2) by turgid on Sunday May 24 2015, @08:06PM

    by turgid (4318) Subscriber Badge on Sunday May 24 2015, @08:06PM (#187325) Journal

    Someone I know does a lot of "investing" on the side (it's not his day job) frequently gambling thousands of dollars and generally making a profit. He told me he has some very sophisticated spread sheets that he did for modelling companies. He can tell when a company is a good buy.

    Apparently there is this thing called "leverage" where you can borrow money to buy an investment and it works something like this: Suppose you think there's a great opportunity to buy some stock on the cheap and that it's likely to go up significantly (5-10%) in value, but you've only got, say $1000 to invest. You do a deal where someone will lend you, say $10000 to buy the stock. You then sell them at a profit, and pay a bit of interest on the "leverage." You've effectively made 10 times the profit you'd otherwise have made.

    If a disaster happens and the price falls instead of rising, you're only liable for your $1000 i.e. the institution that lent you the leverage picks up the bill for the rest.

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  • (Score: 0) by Anonymous Coward on Sunday May 24 2015, @09:35PM

    by Anonymous Coward on Sunday May 24 2015, @09:35PM (#187358)

    Generally when leverage is mentioned it is referring to a simple loan from whatever company you are trading through. In your example, if the $11,000 stocks went down to $6,000 you have lost $5,000 and have a $10,000 debt to pay back at a high interest rate. You effectively are borrowing money from a guy outside a casino because you believe a certain machine will be paying out for you in the very near future.

    There are ways to reduce risk trading stocks, but leverage is not one of them.