My alternative market suggestion for FI
Mintyfresh last edited by
Pointless thread by the way, as we know Nasdaq/Orderbooks are coming, but this is my take on the problem FI had and an offering of an alternative way to solve it!
The historic position
Market price was the only way to buy, but there was a lower IS price offered by FI if you wanted to cash out. IS could be frozen and varied player by player, but was largely active and was typically at about 95% (not sure if that percentage is right, but its good enough for this narrative).
Average dividend yield was been circa 11% (sometimes as high as nearly 20% in the early years) and the recent dividend review is forecast to put this up to 15%.
Shares will expire after 3 years (but this is not going to start happening until next year).
In simple terms, you could buy the "average" player for £1, take 3 years of dividends at 11p per year, then sell back to FI at 95p. Yes, they get 2% commission on that sale (2p) but they are still down 26p/% on the trade. It is for this reason, in my opinion, that they had to do something about IS long term, as it is not really sustainable over a long period (it might be great to stimulate growth initially, but there comes a time when the market has matured when FI have to reduce this risk exposure to themselves; ultimately, we benefit from FI being sustainable, so it's in all our best interests really).
FI's (apparent) solution
Bring in order books, with trader backed IS, removing this risk to them entirely and keeping their promise to retain IS. However, this will stunt capital appreciation, as now buyers have a new way of entering the market and they will do so, where possible, at a reduced buy price, slowing the growth of the share price. Capital appreciation is probably the main area where traders have made money in the past and it gives a gamblers thrill, so it needs to feel easily achievable.
The matching engine
I would cut FI some slack here. This was conceived, developed and launched in about 8 weeks, purely to provide an exit point for those who were trapped in holds due to to Covid-19 pandemic and the suspension of IS. It is not the long term solution and should not be judged as being so. FI themselves never intended this to be future of our trading and it was developed outside of the Nasdaq agreement so that those needing an exit point didn't have to wait until full order books came along.
Adding sell orders to this will not really achieve much more. It might make those selling feel they have more control, but ultimately, buyers will still be looking to under cut to get their bargains. Indeed, sell orders might push prices down further, as we'll end up with a bartering process starting at a lower point.
Offering such a high IS was a risk problem for FI. However, it was a massive comfort blanket for traders. FI is also, currently, a simple product to pick up and use and I think buying and selling needs to be kept easy to use to help with it's plans for growth.
I would propose reverting back to a similar market to what we had before (one buy price and IS offered by FI only) but with an IS value that depreciates over the term of your bet. i.e. After you buy a share, for the first month, the IS could be close to 100% of the buy price, but after one month it drops to 90%, then 85%, etc. until, after a three year period, there is virtually no IS at all. This would provide a safety net for those chasing a short term rise/flip, but would also protect FI from someone sitting on their hold, taking dividends along the way and then having to virtually give them their stake back at the end.
As a say, the above is largely a pointless ramble, but someone on another thread asked what an alternative would be to stimulate the market and this would be my attempt!
Happy trading all.
Marksandygill last edited by
Just out of curiosity, you buy Mbappe for say £10, he returns 2% a year at most, after 3 years you've made 60p and have a share worth nothing?
Mintyfresh last edited by
@Marksandygill yep, would be my proposal, but only if you IS. You could still market sell at any time at full value and with someone like Mbappe (or indeed any of the premium players) that shouldn't be an issue. Just means they become riskier holds the closer they get to their expiry date. Of course, you'd expect the most expensive players to also generate the most dividends, so people will be more likely to take that risk.