Do not take investment advice from Love Island
🔸 Plus: Stocks hit record highs 🔸 You cannot just "buy" an Hermes bag 🔸 Ray Dalio thinks the US might end up in civil war 🔸
Your 2-minute guide to demystifying money and making you richer
The markets, year-to-date
S&P 500: 5,297.10 ⬆️ 11.69%
FTSE 100: 8,424.75 ⬆️ 9.11%
Bitcoin: $66,143.00 ⬆️ 49.63%
GBP to USD: 1.2664 ⬇️ 0.50%
GBP to EUR: €1.1658 ⬆️ 1.10%
No, you absolutely should not take investment advice from the stars of Love Island!
It’s a sentence I never thought I’d have to type but here it is:
Do not take advice on the trading of risky currency derivatives from the stars of Love Island, The Only Way Is Essex, or Geordie Shore.
In frankly astonishing news, the Financial Conduct Authority has charged seven reality TV stars and two other alleged grifters with promoting “contracts for difference” (CFD) currency derivative bets to their 4.5 million followers on Instagram.
The accused stars are: TOWIE’s Lauren Goodger and Yazmin Oukhellou; Love Island's Jamie Clayton, Rebecca Gormley, Biggs Chris, and Eva Zapico; and Geordie Shore's Scott Timlin.
They will appear in court on 13 June and potentially face up to two years in prison. (Don’t worry — they won’t get that!)
Your teachable moment: What is a CFD?
You can be forgiven for not knowing what a CFD is.
In a CFD, you bet on whether an asset will move up or down by the end of the trading day. You win the bet by guessing correctly which direction it went in, and the amount you earn is the difference between the start price and the end price.
CFDs are usually made on currency trades — i.e. you’re betting that the pound will move up against the euro, or whatever.
Because currency movements are usually incremental, trading platforms that offer CFDs also offer these trades with “leverage” or “margin”.
That’s a fancy way of saying that your bet — and therefore the winning margin — is magnified. For instance, if you bet £100 with 10-times leverage, you have £1,000 riding on the bet. Let’s say you guessed correctly that the pound rises by 5% against the euro. Without the leverage, your £100 would have turned into … £105.
Which isn’t a very interesting bet.
But £100 with 10X leverage is £1,000, and your £1000 bet is now worth £1050, which means you have made a £50 profit from a £100 bet.
No, it’s not a coin-flip
This sounds like an attractive way to make money, right? You’re basically betting on a coin-flip, whether currency A will go up or down against currency B.
Wrong!
While the currency markets aren’t random their daily incremental moves might as well be. Importantly, while most currency moves are very small, there are rare but regular earthquakes. You might remember that the pound fell nearly 20% during the 44 days when Liz Truss was prime minister.
And because your money is leveraged your losses can mount pretty quickly. If you guess wrong, your losses end up being multiples of your underlying bet.
This concept — leveraged losses — is poorly understood by most people. Normally in a “bet” your losses are limited. All you stand to lose is the money you put down. But in a leveraged bet your losses are unlimited — you won’t know how badly you’ve done until the trade is ended. And your losses will be multiples of your original stake.
In fact, the FCA says that 80% of consumers who try CFDs end up losing money.
For this reason, CFDs are actually illegal in the US.
But not in Britain!
The UK sits inside a highly convenient time zone — we have crossover during the working day with virtually every other country on the planet — which makes London a big centre for currency trading.
And for that reason, CFDs are legal here. You can find them offered on platforms like eToro and Plus500.
It is nonetheless illegal to run or promote an unauthorised investment scheme — which is why these celebs are now facing charges.
Be warned: serious people do not engage in CFD trades.
That’s why the people accused in the FCA case used reality TV stars as their admen and women. They were targeting people who know nothing about money and investing, people who can be easily convinced that CFDs are like flipping a coin. People who are looking to get rich quick. People who don’t understand how much money you can lose when leveraged bets go wrong.
And for dessert …
The stocks of companies that have good gender diversity do less well than those that don’t. Morgan Stanley has the depressing data.
Stocks hit record highs. The Dow and the S&P both hit new records. Even the FTSE is showing signs of health. Time for you re-read Moneyin2’s advice on how to invest when the market hits a peak.
You cannot just “buy” a Hermes Birkin bag. The company chooses you, not the other way round. An excellent longread from The Hustle.
Ray Dalio, the founder of investment firm Bridgewater Associates, believes there is a one in three chance that civil war will break out in the US.
Citi execs are losing their executive assistants. Managing directors will have to start reading their own emails from now on.
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