Monday, September 28, 2009
“Ping” Programs, Are they Real or Not?
Every day we speak to investors who expect to leave money in their account, and collect huge profits from private placement investments. Where did this false expectation arise from? As usual, it was created by misinformed private placement brokers who wanted to increase the number of new applications. Unfortunately, it did just that, while also creating a false expectation for new clients with interest in private placement.
The idea behind a “PING” private placement program is that the client leaves the money in their own account, and the trading bank checks on it to make sure the full balance is still available. This verification of the funds by the trading bank is referred to as “PINGING” the account, and supposedly is done on a daily or weekly basis to ensure the balance remains stable. This is also the same premise behind an “administrative hold”, which many inexperienced brokers will refer to as well.
For many of the beginners in the business this may make sense in theory, but the problem is simple, THERE IS NO COLLATERAL IN PLACE. For the trader to be able to access discounted bank instruments, they must have liquid collateral to purchase the notes. This liquid collateral MUST be derived from the client’s assets, which are usually blocked or conditionally assigned to the trader for the period of the trade. Once the assets are blocked or assigned to the trader, they can access a line of credit against the client’s collateral, and start trading on behalf of the client to generate profit. Since “PINGING” the account leaves the client’s funds unencumbered and no assets in favor of the trader, the bank will NOT give the trader a line of credit, and therefore, the “program” will more than likely produce excuses, rather than returns.
The fact is, private placement traders always need a form of collateral to access a line of credit, and a “PING” structure does not provide this. Without this line of credit, the bank instrument is never “cut” and trading will never begin. Despite what you are told, EVERY investment has a degree of risk to it, and typically the investments which offer higher potential returns, have higher levels of risk as well.
If you are a reader, and have closed a “PING” transaction in the past, please post your experiences, but after 7+ years of consistent effort, we feel this structure is nothing more than a sign of future disappointment.
InsideTrade LLC Staff
(412) 235-2855 (412) 235-2855
Submitted by InsideTrade Staff on Tuesday, 8 September 2009