Trading CFDs

[still_in_school]

Hi Guys,

thought it might be a good topic, in helping but also explaining how CFD's are traded, but also how they allow more exposure, vs a difference risk strategy, managment and control, compared to other derivative instruments out there and there advantages.

CFD's are quite similar to all these other products, such as warrants, options, margin lending, the overall advantage of CFD's are there low entry cost, almost maximun leverage (exposure), liquidity, and in a way very similar to trading stocks - as stocks (but are turbo charged on viagra and steriods)

CFD's allow you the ability to both short and long a stock, dividend capture, and stock split.

Overall, its almost like trading the stock on margin, but instead the ability to trade on as little capital of 1 - 5% (other CFD providers require a 10% down) but an exposure of 95 - 99% margin lend out.

the disadvantages are, the ability to be margin called on a 1-2% fluctuation in price action.

*** so set tight stop losses, or have money put aside in your kitty, (but if you are margin called, but still in the position, keep money in your account, to keep your position open, but also this can still magnifer your profit intentions, even further + more.

Eg.. of CFD trading, vs stocks, stocks on margin.

for example lets say the position im currently trading is SRP.


My initial entry for all instrutments is $3.75

We also have $10,000 cash as our advantage.

as for example or we can control this many amount of stocks per each $10,000 worth of value.


Stocks 2666 units x $3.75 = $10,000 Exposure

Margin (assumming 70% lend = 8800 units x $3.75 = $33,000 Exposure (30% capital, 70% margin)

CFD (95% lend) 53,333 units x $3.75 = $200,000 Exposure (5% capital, 95% margin)


as we can see from the above example CFD's allow a greater exposure of leverage and control compared to the other products in purchasing shares.

Cheers,
sis

(more on CFD's will be written shortly again.)

[RichKid]

Great Idea to start this thread SIS, I'm currently looking at finding a CFD broker to register with so it's just in time for the next div season. Keep it going!

[still_in_school]

Setting Stop Losses.

If we were to set a stop loss on the instrutments listed.

And if we were to set stop losses at 5% of the purchase price.

Your maximum loss would be as followed.

Purchase Price $3.75 (5% loss would equate too)

Share 5% of inital capital - $3.56 ($3.75 - $3.56 = 0.18 cents x 2666 Units = $479 Loss)
Margin 5% of full amount - $3.56 ($3.75 - $3.56 = 0.18 cents x 8800 Units = $1584 )
CFD 5% of full amount - $3.56 ($3.75 - $3.56 = 0.18 cents 53,333 Units = $9599

As a percent your initial capital would be at a loss of.

Trading Capital - Loss

Share $10,000 - $479 = $9521.00 (4.79% trading capital loss)
Margin $10,000 - $1584 = $8416.00 (15.84% trading capital loss)
CFD $10,000 - $9599 = $401.00 (95.99% trading capital loss)

so there again, with great exposure comes great loss, if the trade was to go against you.

Cheers
sis

(will write shortly, how to set a stop loss using CFD's and protecting your capital.)

[tech/a]

If you cant trade a profit in a basic share portfolio basis then youll never trade a profit using CFD's

Those with less than enough capital to trade are generally the ones lured to leveraged instruments.Marketmakers and CFD providers desighned the product for their advantage--------although the inexperienced are convinced they are nice guys!

Now to rock your socks.

If you were SHORT ION reciently you had to fund 100% of the position you held at time of trading halt.
So if you had a $5000 positioned leveraged at 95% margin you had to find $100k.Once sorted out ie no take over or rescue you then recieved whatever the halt price a buy/sell price difference was.

Not only that but their contracts read that your money(Margin and unrealised profit) is UNSECURED and they can use it to pay other peoples debt or profit or for any purpose what so ever without your consent.If they go bust then youll be left with no come back.

Leveraged instruments are for cashed up savvy experienced investors.

The SNAKES are much longer than the LADDERS on this board game (CFD's)

[still_in_school]

When setting a stop loss, when trading CFD's

your first question should be how much are you prepared to lose.

as a personal perference, and IMHO

i prefer to trade in exactly $1000 increments

and at an exposure of only $20,000 at time. ($1000 = 5% down, $19,000 = 95% lend)

my reason being for this is, first i have the control of $20,000 worth of stock, 2nd reason is being, if my value of $20,000 worth of stock was to go down 5% the most i could possibly lose is my inital capital of $1000.

As for this example SRP purchased in at $3.75

Stop loss would be set at $3.56

****

If we were to purchase the stock with pure cash, this would equate to the same above equation of setting your stop loss at 5%, but instead of having to only come up with $1000 and the othe $19,000 being lent, you would have to have an inital capital of $20,000 to do this trade successful.

though if you were to set your stop loss on your $1000.00 a stop loss of 5% on your $1000.00 would be used

as for this example.

the best way to work out a stop loss on your own intial investment is to caculate a 1% stop loss on the purchase price of the stock unit it self.

eg..

($1000 - 5% Own Capital : $19,000 - 95% Margin)

$20,000 / $3.75 = 5333 units purchased


$3.75 x .01% = 3 cents

stop loss, would therefore equal $3.72


$1000 (own capital, 5% stop loss on that) = $50

(5333 units x 3 cents = $50.00 Loss)


****

but please note personally if i was to trade $20,000 and $1000 was my own money, my stop loss would be, once my $1000 is eroded, as it is already 5% of the total value worth of that trade.

so before i enter this trade, because i am putting down 5%, i already know the amount im happy to lose if this trade was to go against me.

Cheers,
sis

[still_in_school]

Another thing to mention about CFD open positions, as your profit increases, so does your equity as well,

what this means is, you can draw down on your equity, to further purchase more units in that stock, or purchase other units as different stocks, or stocks from a different sector country or even commodity.. personally i like to keep it basic.

eg..

your initial account was $1000.00

you still hold an open position, your open position, shows that you account, now has a profit of an extra $200

your account would instead be showing

Cash Position $1200 ($1000 + $200)

CFD Position current Profit value $200
Equity Margin Available $4000

what this means is, you now have a further $4000 to draw down as your equity has increased, but also has allowed to further purchase a value of units up to $4000 (5% = $200 your unrealised profits yet)

the advantage of this i find, is that this, is one way, that works very well in averaging up a postion, as a position unfolds and moves north.

personally that is one strategy i like to use, but also another strategy that also works is...

if your position was to go $200.00

and your inital investment was $1000 (controlling $20,000 worth of stock)

sell your position out, but leave your profit at risk, the reason why i say this is... let your profit run... but take your trading capital back out..

this way you have your inital trading capital back in your hands.. but your letting your profit run.. but also you can set a trail to further lock in your profit running but also be able to lock in, further profit as your trail moves up north.. till it gets stopped out..

Cheers,
sis

(will soon write about caculating return on investment/capital)

[tech/a]

SIS

What your suggesting as tantamount to financial suicide

Here is why.

Trading leveraged instruments without knowledge of your Absolute drawdown of the method your trading means you have no idea whether the methodology your using has a chance of being profitable and if indeed its not your personal recipe for financial disaster

With 20x leverage if your absolute drawdown is as low as 5% your guaranteed poverty!
Youll need a max of 3% and I've not seen a method YET with a drawdown that low-------and I've tested 100s of systems.
Most methods collapse with less than 60% initial capital.

Don't you think that CFD providers are aware of that?

Setting a stop at a point where "This is the amount your prepared to lose"!
is simply ridiculous.Your playing "Chicken" with your hard earned.

Setting a stop where your method has proven will return you a positive expectancy is a sure fire guarentee that your stop is set correctly,and your method youve chosen to trade will be profitable.

This is what I mean about the quality of posts on this forum.

Sorry but I sincerely think this is irresponsible advice!

tech

[still_in_school]

For this next area for caculating return on capital, ive used a online CFD caculator that i both use for caculating stop losses and for also caculating realised profits once taken from the market.

Cheers,
sis

[still_in_school]

Hi Tech/a

thanks, for your post, but if you would please note, im not just talking about the positives of CFD trading, but also its negatives... please bear with me, as i go through each example of both losses and profits, to aware individuals about profit and losses examples.

Cheers,
sis

[still_in_school]

As in the next example..

ive again use a CFD caculator, to aware you, of how leverage can also magnify losses, against you if your, trade was to go against you.

Cheers,
sis

[crashy]

SIS has ommitted some major risks when trading with CFDs.

Where an investor is long a CFD and receives a dividend payment, he does not actually own the underlying stock, and as such cannot receive dividend imputation credits. Where actual dividends are not 100% franked (as opposed to CFD dividends which are never franked), the dividend amount may be reduced by an amount that reflects the taxation effect had the dividend been real. There are also tax implications to the investor when CFD dividends are received. In practice this means that a 50c dividend paid to an investor in the highest marginal tax bracket of 48.5% will have a tax liability of 24.25c per CFD.

The holder of a short CFD is required to pay the dividend. Many investors do not realise this. Where an investor is short a CFD and pays a dividend payment, the market maker will require additional payment equal to the franking credits.

Due to the high leverage involved, CFDs are suitable only for skilled investors.

It is possible to lose more money than you invest, because you are borrowing money and putting it at risk. Caution should always be taken when investing on margin. Some people get carried away and expose themselves to very large positions, sometimes resulting in financial hardship when the market moves against them. Market makers protect themselves, and to a lessor degree the investor, by triggering margin calls and sometimes liquidations. This means that if you have $1000 in your account (called the equity), and place a long trade of $10,000, if there is any fall in the share price, a margin call will be triggered. Often the market will be down for only seconds or minutes, and then go back up, in which case no action may be required. If however the stock falls and stays down, the shortfall will need to be covered immediately. If the stock falls 2%, there is a shortfall of 2% x $20,000 = $400. If this shortfall remains unpaid, the stock may be liquidated by the market maker to avoid further losses. If the equity in the account approaches zero, the stock may be liquidated. Sometimes however a stock may gap down on bad news, in which case all of the equity may be lost and more. This has happened several times in the last few years, Brambles, LLC NAB and AMP are such examples.....not to mention events like 911 and Early 2003.

As I said in another thread, it is EXCESSIVE LEVERAGE which kills traders faster than anything else.

LEPOs provide better leverage, lower costs and greater security to CFDs.

As an investment vehicle, CFDs can be very useful, especially in a rising market like we have had.

Although originally marketed as a trading tool, some savvy investors have started to question whether in fact they are more cost effective than normal share investments. Borrowing costs are lower, leverage is higher, fees and commissions are lower (no commission on an index), but best of all, equity is unlocked in real time. This means that unlike other investments, you do not need permission from the lender to borrow more money, meaning you can fast-track your wealth building. If your portfolio has made a profit of $1,000, you now can buy an additional $99,000 in the index (1% margin). Furthermore, there are no minimums for investing, if you only have $1 spare a week you can invest it, no need to pool money until you meet some silly requirement set by a fund manager.

You do not need to buy large amounts of shares in one go because there are few if any costs, you can buy one index CFD a day every day for a year if you like, and it won’t cost you any extra.

[still_in_school]

anyway guys...

thats CFD's for you, personally I like to trade them against options, when the spreads are too wide, or there isnt enough liquidity, CFD's I've learnt and from experience from myself and some other professional traders, is best to be traded, a few days before a stock goes ex-dividend as the share price tends to move in particpation to the dividend date, stocks that channel, in a trending or ranging pattern.

but also for their ability to short or long a stock position.

Cheers,
sis

[still_in_school]

sorry to the guys, who might be getting the wrong impression on how i explained CFD's but in the examples above, ive tried to show both positives and negatives of trading CFD.. but the actual outcomes and strategies that can be used.

Cheers,
sis

[tech/a]

SIS.

Dont mind your explaination of the leverage both ways of CFD's but when I see

"Place your stop at an amount your prepared to loose!"

Your kidding!! Thats irresponsible!!

Sorry but thats the sort of statement a novice would make--------an unsuccessful one!

To be fair youve raised/touched on a good point on a valid way to allow your profits to run."Selling your original and rolling the profit".

But again if you have no idea if your method has a drawdown of less than 3%
trading at full leverage of 20X (Of course you can trade 2,3,5 X) your going to simply bleed to death financially.

tech

[phoenixrising]

Great thread guys

One provider offers guaranted stop loses for 0.3%

Your comments on the implications of this welcome

I think this would take the gap,ion,etc situations out
of the equation, ie stopped out at set stop.

Cheers

PR

[PropertyGuRu]

good tread SIS.

out of topic but crashy you still have free website selling your course? get website for US$ 8:95 per year.

[positivecashflow]

Not too familiar with CFDs yet, but how would you hedge a CFD position?? If the stock gaps is it a guaranteed stop loss?

[phoenixrising]

:confused: Checked out the IGmarkets site for more info on
guaranted stop loses. Very little there. May need
to phone them.

Man and CMC don't provide them.

I don't have an account yet, but interested in
trading CFD's as a stratergy

PR

[tridean]

Hi Tech/a,

I've just stumbled across this forum and it seems as if you are in the know and was wondering if you could eloborate on the ION situation. I actually went short on this position myself and as it was my first time going short I decided to trade a quarter of what I would normally trade. Sure enough I had to fill the other 95% which mow leaves me with almost $5,000 I can not do anything about. Although it's not going to dent me too much should I lose that money could you explain in a bit more detail about the fact that it is unsecured and that someone(???) could use it to pay debts. Do you mean that if ION have debts to pay they are going to come after people like me first?

It has certainly taught me a lesson on shorting cfd's, and that I should do more homework on the fundamentals of companies. This is something that is not taught in the course I attended but it is still no excuse not to do your homework. I suppose the other thing I learnt was that I was smart in playing it a little more cautiously and only trading a quarter. For this I will give myself a pat on the back.

Having said all this I have made a handsome profit in the last 4 months and am preparing myself for when the market changes.

Hello Phoenixrising,

I was under the impression that Man and CMC do provide Guaranteed Stop Losses but at a cost. They certainly did a few months ago however I have never used them. It is something I am going to consider after the ION incident but as I use trailing stops I will have to check wether they will charge every time you set a new stop.

Tridean

[tech/a]

Simply

The CFD provider borrows the stock and gives it to you.
When the stock de lists then the provider has an obligation to the owner of the stock to return it.
As it had a value when the provider borrowed it the stock must be returned at the price that it was originally borrowed.

Your Liability is with the CFD provider not the Owner of the stock OR ION.
your risk is limited to the value of the stock.

For the rest of the rules on how and why they can do that look at your CFD contract.Perhaps get a legal interpretation.

OH! and a guaranteed stop wont help you if you hold it at the time of trading being ceased.

[wayneL]

You went short and still lost?

Boooo hisssss!!!!!

With ordinary shares you would have been a big winner!

Another reason not to trade CFD's.

Cheers

[tridean]

I haven't lost anything! I am actually earning interest.

But I may lose, that is what tech/a is saying. I would have also thought if you were short just stocks then you would be in debt to your broker as the broker has lent you something that you have gone and sold and you can't buy it back.

Anyway it's neither here nor there as far as I'm concerned. It's a matter of choice what people do with their money, and I am not going to get into a debate with anyone about what to trade, especially after witnessing one of the worst threads I'd seen on a forum when someone came on and told everyone on the forum that writing covered calls was a complete waste of time and that no one makes money on them. To make matters worse they told a few regulars on the forum that they were full of s#@t. Not a good sight for someone new to the forum and new to investing.

I like cfd's but I'm not stupid with them. And I don't trade with bread and milk money.

Thanks for your comments though,

Tridean

[wayneL]

Tridean,

You made it sound in your previous post like you had to cough up the balance on your short trade. Sorry if I musunderstood.

But your latest post sounds like you have something you need to get off your chest.

>>especially after witnessing one of the worst threads I'd seen on a forum when someone came on and told everyone on the forum that writing covered calls was a complete waste of time and that no one makes money on them. To make matters worse they told a few regulars on the forum that they were full of s#@t.<<

Which thread are you alluding to here?

I have never seen this said anywhere on this forum. However I am aware of a thread on another forum, which I was involved in, where inaccurate statements were taken to task regarding covered calls.

But nowhere was it stated that they are a waste of time. They have their place.

If you have something to add regarding covered calls, I would love to hear it.

Cheers

[tridean]

Hi WayneL,

The thread I was talking about is on another forum. Simply put some issues on covered calls got well out of hand and it is a shame for those wanting to start out and get a feel of the market could have been put off.

Take my Dad for example, he is very prone to believing a negative report before a positive one, and he could have successfully paper traded this strategy for 6 - 12 months and then as soon as he reads something like this it would have put him off FOREVER! It is that sort of crap that people do to others that is why the world is the way it is today in regards to peoples financial positions, what our kids are taught in school and then how we are conditioned to believe that 5% return on our money is just absolutely magnificent. What a load of bull. Anyway I wasn't trying to get something off my chest I was just hoping that I wasn't going to see a repeat off this with cfd's.

I am new to this forum and already have benefited from a post that led me to a free options course which has just blown me away. I reckon I've learnt more from that in 12 hours than I've learnt from several seminars and courses. But as I say to my kids if you arent' prepared to go out and seek the education you need it won't find you.

I look forward to picking the brains of many on this forum also

Cheers

Tridean

[RichKid]

I am new to this forum and already have benefited from a post that led me to a free options course which has just blown me away.
I reckon I've learnt more from that in 12 hours than I've learnt from several seminars and courses. But as I say to my kids if you arent' prepared to go out and seek the education you need it won't find you.

I look forward to picking the brains of many on this forum also

Cheers

Tridean

Hey Tridean,
What's that free options course you liked so much? Do you have a url or name for the site? Enjoy ASF!!
Thanks!

[positivecashflow]

Hi Richkid,

It is here from this post:

http://www.aussiestockforums.com/forums/showthread.php?t=393

Be prepared to get lots of SPAM email when you sign up though!

[doctorj]

I've got some gmail invites spare if anyone wants to use one to sign up to this thing.

[The Barbarian Investor]

drJ

GMAIL ??

Curious..what is g-mail?

[Joe Blow]

drJ

GMAIL ??

Curious..what is g-mail?

Gmail is Google's new free webmail product. It hasn't been released to the general public yet but current users have 'invitations' they can give out to those who want an account.

Gmail offers 1 gig of storage space which is quite a bit more than rivals Hotmail and Yahoo Mail.

[RichKid]

Hi Richkid,

It is here from this post:

http://www.aussiestockforums.com/forums/showthread.php?t=393

Be prepared to get lots of SPAM email when you sign up though!

Thanks mate, will get around to downloading it soon. Don't think I'll really be into options till next year but I might learn something in the meantime to help my planning.

What are people's opinions of the course?

[markrmau]

Another reason not to trade CFD's.

Hi All,

Is there anything fundamentally wrong with CFD's? I am looking seriously at them but note the following:

1. Leverage: Large. Foolish people will blow up if over exposed. However, I am only considering cfd's as an alternative to margin trading. ie. I will only take $10-15k positions on a stock, same as I do on margin. The interest seems comparable to margin loan (perhaps a few percentage points more), but brokerage is significantly lower.

2. DONT HOLD OPEN POSTION AS GOES EX-DIV. (the first thing I noticed is you dont get franking credits at div time). See crashy's post.

3. CFD prices seem to mirror the underlying spot price. So we don't have the complications of IV and time decay associated with warrents/options.

Anyone here trade cfd's? Do they truly mirror underlying spot price as per my point 3?

Thanks,
Mark.

[stockman]

Tech or anyone who can answer, if you were to short sell WMR now at $7.85 what would happen?

Would you lose all your capital once BHP had taken over or would you get $7.85 once BHP took over the stock??

I was thinking of doing this trade but if u lose all your capital whooow!!!

Thanks

[rozella]

I posted this elsewhere a few days ago.

I gave CFD's an 18 months try, on top of my normal marginlending, because the leverage was so good, but alas I could not make the Dividend Strategy work properly. I don't want to knock CFD's as they can be a good tool for the right strategy. The following is why I could not make it work as well as conventional marginlending.

1. When a stock goes exdiv, I expect it to drop an amount equal to the dividend + franking credit. CFD's don't compensate for franking credits, however they used to but cut it out. This puts you at a disadvantage as you have to make up the fc in extra profit.

2. I do a lot of trading in the open/close matchout periods. CFD's don't allow this (Manfinancial may)

3. On the physical ASX market if you wanted to buy/sell a quantity of stocks & there was not enough at the price, you could buy/sell & receive an average price, where with CFD's they come back with an offerred price with no price stepping.

4. There is no buffer amount before you go into a margin call. You must allow for this yourself.

5. Because you are borrowing more, the interest is higher for each trade than the conventional ml.

6. CFD transactions used to be free. CMC was called "deal for free" Now I believe, is more than an online broker.

7. Because of the very high leverage you need to have very tight stops, tighter than 3%, which won't work as the stocks normally traded for the div strategy swing quite a bit. Conventional marginlenders are only concerned with the closing price, where CFD marketmakers, can give you a margin call intraday

8. CFD interest starts at the buy time, where a conventional marginlender starts at T3.

Each of the above points may not seem a big deal, but all added together, I struggled with it. I found the only way I could use CFD's was to sell prior to exdiv date, & after ( section 1,2, & 4) but I needed a regular income stream as well, so on its own it did not suit me.

I have not used them for over 2 years now, so I suppose the above still applies. The other sticky point with me is that you don't own anything, you only take a position like a derivative. There is no CGT as all profits are income (easy bookwork)......that does not bother me as I am classified as a trader anyway.

As I said above, CFD's can be a good tool for the right strategy, but they did not suit me.

[Smurf1976]

There is no CGT as all profits are income (easy bookwork)......

Are you SURE about this? I was looking into CFD's a while ago an made some enquiries to the tax office. They told me that it would be just like a share trade with CGT on the profits (if any). :confused:

[wombat40]

whats wrong with trading normal position sizes as u would with shares......

hav the advantage of a stop order ....guarantedd stop loss and commisions are similar to shares......also can leave ur $ elsewhere.....

just because u can use bigger positions doesnt mean u hav to...... :)

mark...

[markrmau]

Thanks for these comments all.

Yes, I can see that cfd's suck around dividend time. However, if you wanted to stay long, the brokerage is so cheap, you can sell cum-div and re buy ex-div. You could probably time it to gain more than div+frank from what I have seen of SP behaviour.

If you are purely using cfds to open long positions over long trends, you are better off with a margin loan because of dividend franking, and the net interest rate will be slightly cheaper:
eg MarginL, LVR=75%: approx 25% your capital, interest at O/N rate, +75% borrowed capital at lenders rate
CFD: 100% capital at lenders rate

However, obviously the advantage with cfd's is you can easily short, and guarenteed stop loss protects you even in the event of bad news (even if you are long and the stock gaps down below your stop loss on open, you are still protected).

Some further notes:

0. Cheap brokerage is without the guarenteed stop loss.
1. Minimum deposit at no interest: $5000
2. I want to clarify some of the Force Majeure terms. If had another 11/9/01, would you loose a protected stop on big gaps down?
3. I don't intend to abuse the margin, so for my particular needs, this appears to be a good product.

[wayneL]

However, obviously the advantage with cfd's is you can easily short,
As far as i'm concerned, this is the one and only advantage of trading CFD's on the ASX.

Once you consign ASX share trading to the garbage pail (where it belongs) and trade the US markets, that so called advantage quickly pails into insignificance.

[dutchie]

G'day Wayne

Does your comment regarding trading US market pertain to Option trading or to straight stock trading or both?

Do you stay up all night to do your trading?

Cheers

[rozella]

G'day Smurf1976,


Are you SURE about this? I was looking into CFD's a while ago an made some enquiries to the tax office. They told me that it would be just like a share trade with CGT on the profits (if any).

I am not sure 100% as all enquiries were done by my accountant. The answer from the ATO was that because I did not have title to the shares, I did not own them so there was no capital gain/loss, however there is profit/loss because I was taking out a contract for the difference between the buy & sell price. The only Balance Sheet item was the CFD account, but no shareholding asset. The Profit & Loss Sheet had profit/loss in the revenue section, & the interest & commission/brokerage was in the expense section.

I remember a trader friend of mine who introduced me to CFD's a few years ago, contacted the ATO to ask the same questions, but they did not have any real answers, & asked him if it would be okay for them to contact him now & again re learning more about the product, they were going to do a study on it, but as far as I know they only contacted him once or twice after that.

It would be worth trying them again. But the bottom line is if you are a trader, the taxable income is the same whichever way you wish to account. It is unlikely that you would hold the stocks for a lengthy period where CGT would benifit you unless you are already holding capital losses that you want to offset.

Cheers,

[stockman]

Can someone please explain if you went short WMR shares at $7.85 a month ago you would have got paid 3.5% right.

Now it is going to be suspended on the 24 th of June as BHP are taking them over at a price of $7.85. Do you get the price of $7.85, or do you lose your capital???

Thanks

[markrmau]

Do you mean that if you shorted at $8.10, you would get approx 3.5% ?

Yes. You would sell at $8.10, receive interest on the amount (ONCR-approx 2.5%) and buy them back now at $7.85 (covering your short).

I don't understand what you mean by shorting at $7.85 at this point in time.
Or am I missing something?

Edit. Yes I am missing something. Why the hell are they now $7.83. Wont bhp compulsorarily acquire at $7.85?

[stockman]

When you go short you get paid 3.5% p.a. When you go long you pay 7.5%.

[markrmau]

Oh, I see. You could have 'borrowed' a large amount of shares, putting up only say 10-20% of the capital (because of the leverage) and get 3.5% interest on the lot. Comparable to say >20%p.a. on your initial input.

Nice.

Don't forget that when your cfd provider had to return the shares, the short would have been closed out.

[rozella]

G'day Smurf1976,

I found this on the ATO site, but it is only a draft ruling.

CFD Draft Taxation Ruling (http://law.ato.gov.au/pdf/tr04-d17.pdf)

[markrmau]

Can someone please explain if you went short WMR shares at $7.85 a month ago you would have got paid 3.5% right.

Now it is going to be suspended on the 24 th of June as BHP are taking them over at a price of $7.85. Do you get the price of $7.85, or do you lose your capital???

Thanks

From marketech PDS.

"Marketech may also elect to close a CFD, where the underlying shares are the subject of a take-over offer, prior to the closing date of the offer. CFDs do not entitle you to any voting rights in connection with the underlying instrument or security such as shares."

Marketech seems to have a competitive product. In my research of cfd's I have found there is a bloody lot of fine print to absorb. Caveat emptor indeed.

[wombat40]

with cmc they dont hav a stoploss facility on the software......hav to put on a sell order to have stoploss...does any one have the same experience..i have been using it to trade but have not used stoploss yet.....i have a different setup...

mark

[mit]

Want to add one more thing to Rozellas excellent discussion on CFDs is that people should be aware that they are paying interest on the entire position. With a margin loan if you have a LVR of 50% you only pay interest on 50%. If the share goes up 10% you still only pay the interest on the original amount.

With CFDs (at least with CMC) you pay interest on the lot. If your share goes up 10% you pay interest on that 10% as well.

The best things about CMC however is that if you start with small amount of capital, if you are systematic and careful you can quickly build up your stake.

However, to me, once you build up your capital to a reasonable amount, for my style of trading (5-10 stocks held for a couple of weeks) I would personally use margin lending. I still use CMC for their forex, shorting, playing with the Aussie200 and my occassional desire to do a quick daytrade.

MIT

[bonkers]

Hi The Trend is your Friend--would you have the web address of the CFD online calculator?---have looked but haven't been able to find it--looks like a handy tool to have.
Regards, BK.

[Kauri]

Mmmmmm...a LITTLE annoying :swear: ...I.G having trouble with their platform...down for 30 mins so far today... yesterday was patchy too.. adds a bit of excitement to a trade :D Hope the phone holds up!!!

[robots]

hello,

I find from information read, CFD's to be a contract purely with the CFD organisation, and as such a very complicated bet.

You never own or will own the underlying stock.

As far as betting is concerned, far easier to use IG Index , where you can buy/sell most ASX200 stocks by betting for example $10.00 per point.

I did have trouble getting my money out of one these organisations. Not a large sum but after around 8mths of "betting" I was up several thousand dollars.

Made around 5 phone calls to organisation, and after 2 weeks finally got my money.

The majority of these organisations are betting houses, that promote/advertise in the financial press.

regards
robots

[Kauri]

hello,

I find from information read, CFD's to be a contract purely with the CFD organisation, and as such a very complicated bet.

You never own or will own the underlying stock.

As far as betting is concerned, far easier to use IG Index , where you can buy/sell most ASX200 stocks by betting for example $10.00 per point.

I did have trouble getting my money out of one these organisations. Not a large sum but after around 8mths of "betting" I was up several thousand dollars.

Made around 5 phone calls to organisation, and after 2 weeks finally got my money.

The majority of these organisations are betting houses, that promote/advertise in the financial press.

regards
robots

Most Cfd companys now also offer DMA which does away with the bet angle, spreads, etc and instead gives you commissions and interest charges/credits. Very similar to margin lending.

[Smurf1976]

The majority of these organisations are betting houses, that promote/advertise in the financial press.

In the UK they simply call it "spread betting" and there's no tax on profits (so I'm told) because the government views it as gambling "and most gamblers lose".

[finnsk]

Hi guys

I dont understand why you call it for betting, as far as I am concerned if you buy 1000 shares in BHP from fx comsec to a value of $20/share and it goes up to $21/share you make $1000 profit, if it goes down to $19/ share you have a $1000 loss.

If you buy 1000 CFDs/shares of BHP from fx macquarie bank at a value of $20/share or 5% = $1 and the scenario is the same up or down you will either have a gain or loss of a $1000.

Difference is the outlay of money $20000 contra $1000.

Where is the betting in that?

[wayneL]

Hi guys

I dont understand why you call it for betting, as far as I am concerned if you buy 1000 shares in BHP from fx comsec to a value of $20/share and it goes up to $21/share you make $1000 profit, if it goes down to $19/ share you have a $1000 loss.

If you buy 1000 CFDs/shares of BHP from fx macquarie bank at a value of $20/share or 5% = $1 and the scenario is the same up or down you will either have a gain or loss of a $1000.

Difference is the outlay of money $20000 contra $1000.

Where is the betting in that?

The "spread betting" houses and the UK government know most traders come to the market with casino mentality.

It's why 95% of traders lose.

[Smurf1976]

Hi guys

I dont understand why you call it for betting, as far as I am concerned if you buy 1000 shares in BHP from fx comsec to a value of $20/share and it goes up to $21/share you make $1000 profit, if it goes down to $19/ share you have a $1000 loss.

If you buy 1000 CFDs/shares of BHP from fx macquarie bank at a value of $20/share or 5% = $1 and the scenario is the same up or down you will either have a gain or loss of a $1000.

Difference is the outlay of money $20000 contra $1000.

Where is the betting in that?
The thing is that most people using a spread betting account would use the leverage to increase exposure to the market rather than reduce the capital required.

That's gambling in my opinion. It is the exposure to high leverage which enables the massive losses in very short time. Even a 2% loss becomes 40% of your capital gone when it's leveraged 20:1. Spread betting companies know this and operate like a casino - take the losses of their customers plus the spread and just pay the few winners out of their profits. If you start winning too much then they wouldn't be too happy about it - presumably that's why withdrawals require human contact whereas everything else is online. Mustn't have too many winners or, just like a casino, the spread betting company would go broke so they do need to keep a check on anywone making withdrawals from their account.

Having once had a spread betting account I won't be going there again. Just far too many tricks in my opinion. Things like the All Ords plunging hundreds of points in the middle of the night to knock your stops out and then bouncing straight back again in a matter of seconds when there was no comparable movement in any major stock market that was open at the time. Not providing price data in a useable format (eg. charts with constantly changing scale and no ability to zoom out to longer than an hourly timeframe thus making T/A extraordinarily difficult). And of course they won't give you the raw data and getting the data from elsewhere is useless since the spread betting index moves independently of the underlying market.

It would be like owning an oil stock but using a chart of the crude oil price to set your stops for the stock you hold. The stop will have to be pretty wide to avoid constant false triggering and with the high leverage that's likely to lead to massive losses. There are easier ways to trade.

If a CFD position is hedged in the underlying market and the leverage is used sensibly then that would be different. There are some CFD providers which claim to do this. There is at least one that appears to link stock CFD's to the underlying market but runs the index as spread betting.

I'm yet to meet or even hear of anyone who makes a consistent profit spread betting. CFD's linked to the market yes, but not spread betting. No doubt there is someone who does, but they're in the same category as those who make consistent profits at the casino in my opinion. Unusual and likely to find problems being allowed to continue since they are literally taking money from the spread betting company's bottom line.

[robots]

hello,

contract for difference, is exactly that, you have a contract to be responsible for the "difference" between the price you enter and the underlying stock price at the time of closing the position.

thanks
Robots

[Kauri]

Not sure if I am 100% correct but this is how I understand CFD trading....
Some CFD companys still offer only the spread type contract where the cfd provider acts as market maker. Under this platform they set the buy/sell prices above/below the current market price, ie. in the NAB example quoted they may offer $21.30 to buy and $19.70 to sell, on the underlying market price of $20.00. It varies on their perception and exposure to the particular stock. However there is no commission payable, the spread is meant to cover this. The CFD provider may hedge part or all of the position in the market, or may accept the total risk and hold the position against your contract. A commonly quoted problem with this model is in some stocks the size of the spread, and also inexplicable delays in your order being filled, allowing the available spread being offered to move well beyond your buy/sell point (particularly with large positions). Ah,The joys of dealing with a Market Maker..:( .
Some CFD platforms offer the DMA(direct market access) model ( Maquarie Bank, Man Financial, and IG Markets are three I can think of). In the DMA model the buy/sell is the current market price, and all contracts are fully hedged in the market. If you place your order for 1000 NAB you can see your order in the market depth, there is no spread, rather a %commission is charged, and interest is charged/credited daily on the total position.So in the DMA model the CFD provider makes their profit on commission and interest, not on wether the trade moves against you or not. Mind you there are a few little tricks eg. IG charge interest on the full value of the position at the end of each day (as opposed to the amount of credit), calculated daily. IG rates are currently RBA + 2.5%/360....yes for some reason they think there are only 360 days in the year!!!!! The amount of deposit required varies depending on the stock and the provider, typically it is between 5% and 20% I think. Guaranteed stop losses are offered by some providers at a premium on the commission, the % charged depends on their take of the stocks volatiliy.
When does gambling become investing?? When does an investment become a gamble?? To me the DMA model is no more or no less a gamble than other leveraged derivatives such as warrants, options, margin lending, or futures contracts. The gamlbe is in each individual traders pyschology, trade management, risk tolerance, discipline, and stock selection. The leverage just magnifies your success/failure.
Tha above is my opinion only, how do others see it? :)

[smrt-guy]

I'm hoping someone hear can offer some insight. I've read the latest CMC PDS and can find no mention of a spread on aussie equity CFDs. I'm certain when I read it 8 months ago there was a mention of it. Can anyone tell me if there is a spread, and how you are able to tell what it is (usually) other than comparing it to etrade at the time of placing the order?

I've spoken to CMC and they inform me there is no spread, but I see many a complain on this forum about how they suddenly widen it.

I'm unfortunately having to move away from Marketech who had been a dream to deal with because of a change in their margin requirements.

[Narkov]

I'm hoping someone hear can offer some insight. I've read the latest CMC PDS and can find no mention of a spread on aussie equity CFDs. I'm certain when I read it 8 months ago there was a mention of it. Can anyone tell me if there is a spread, and how you are able to tell what it is (usually) other than comparing it to etrade at the time of placing the order?

I've spoken to CMC and they inform me there is no spread, but I see many a complain on this forum about how they suddenly widen it.

I'm unfortunately having to move away from Marketech who had been a dream to deal with because of a change in their margin requirements.

There is no artificial spread on ASX shares other then the market spreads but IS a spread on Index CFD's. It's usually two points during market hours and 4 or more after hours.

[Porper]

Not sure if I am 100% correct but this is how I understand CFD trading....
Some CFD companys still offer only the spread type contract where the cfd provider acts as market maker. Under this platform they set the buy/sell prices above/below the current market price, ie. in the NAB example quoted they may offer $21.30 to buy and $19.70 to sell, on the underlying market price of $20.00. It varies on their perception and exposure to the particular stock. However there is no commission payable, the spread is meant to cover this. The CFD provider may hedge part or all of the position in the market, or may accept the total risk and hold the position against your contract. A commonly quoted problem with this model is in some stocks the size of the spread, and also inexplicable delays in your order being filled, allowing the available spread being offered to move well beyond your buy/sell point (particularly with large positions). Ah,The joys of dealing with a Market Maker..:( .
Some CFD platforms offer the DMA(direct market access) model ( Maquarie Bank, Man Financial, and IG Markets are three I can think of). In the DMA model the buy/sell is the current market price, and all contracts are fully hedged in the market. If you place your order for 1000 NAB you can see your order in the market depth, there is no spread, rather a %commission is charged, and interest is charged/credited daily on the total position.So in the DMA model the CFD provider makes their profit on commission and interest, not on wether the trade moves against you or not. Mind you there are a few little tricks eg. IG charge interest on the full value of the position at the end of each day (as opposed to the amount of credit), calculated daily. IG rates are currently RBA + 2.5%/360....yes for some reason they think there are only 360 days in the year!!!!! The amount of deposit required varies depending on the stock and the provider, typically it is between 5% and 20% I think. Guaranteed stop losses are offered by some providers at a premium on the commission, the % charged depends on their take of the stocks volatiliy.
When does gambling become investing?? When does an investment become a gamble?? To me the DMA model is no more or no less a gamble than other leveraged derivatives such as warrants, options, margin lending, or futures contracts. The gamlbe is in each individual traders pyschology, trade management, risk tolerance, discipline, and stock selection. The leverage just magnifies your success/failure.
Tha above is my opinion only, how do others see it? :)

I have just signed up with IG Markets (today).

After a few phone calls the facts are that each CFD is traded at the ASX market price, so they cannot just widen the spread to stop people out like has been mentioned.They are also hedged against losses and match orders up, eg, if you win another person loses type scenario.

The guy I spoke to also called it "betting" which scares me straight away as in my eyes there is little difference in the process to normal share trading.

As for the risk, you definately need strict position sizing and just because your, let's say $20,000 will buy you $200,000 worth of shares doesn't mean you have to, infact that would be suicidal in a financial sense.I don't see a problem with it yet, interest is the one obvious big negative.

The only reason I am doing it is it gives me the option to go short easily.

Out my comfort zone, but will give it a go. (with money I can afford to lose.)

:bigthumb:

[grossrealisation]

hi all
Is anyone involved in a hedging fund that hedges long or short the cfd market and what the returns are.

[money tree]

you have no business trying to set up a hedge fund (an illegal one at that). You dont have the staff, the qualifications, the experience and it seems not even a strategy (let alone a track record). It costs over $1m a year in legal expenses to run a fund. You got that?

give up this stupid pursuit now. (before ASIC deals to you)

[Narkov]

Wow...hold up there partner. He never said he wanted to set one up. Not only that, how do you know what his financial abilities are anyway?

[money tree]

yeah he did actually....in another thread which has been deleted because it violated ASIC laws

as for his financial abilities......cant be that good if he has to steal someone elses idea

[bullmarket]

Hi Narkov


Wow...hold up there partner. He never said he wanted to set one up. Not only that, how do you know what his financial abilities are anyway?

Tend to agree with you. I was thinking the same thing when I read money trees' post. I certainly place no credibility in accusations made from behind a nic in an environment like this, especially when the accuser then says the posts that are supposed to support his accusations have been deleted...yeah right.... :rolleyes: ...maybe they have, maybe they haven't, maybe they existed, maybe they didn't exist...who knows...who cares :)...but from where I'm watching if anyone makes accusations or statements about what someones else allegedly said or did without providing verifiable proof to support their statements then imo they are leaving themselves wide open to being thought of as liars, since no-one is under any obligation to blindly believe any unsubstatiated statements.

Anyway, the main purpose of this post was to highlight an additional risk to CFD trading which may or may not have been mentioned so far (I haven't read all the posts in this thread). I read in the old Shares mag a few months back, when they talked about the pros and cons of CFD's, that in the unlikely event a stock is permanently suspended, delisted, goes belly-up or whatever then you could most likely lose a lot more than your original 10% or whatever stake. If a company goes belly-up you will most likely have to still repay the 90% margin you borrowed from CFD provider. So please keep this in mind if CFD trading speculative stocks.

Personally, CFD's don't suit my objectives or risk tolerances so I don't touch them, but I see they are becoming popular. I suppose for traders (and even investors I guess) they make it much easier to short trade stocks, trade market indices, foreign companies...and maybe even bet on the proverbial two flies crawling up a wall :D. But unless one fully understands how the mechanics behind a CFD trade work and the concept and risks associated with highly geared trades then they are very high risk imo.

Above is just food for thought and good luck to those using CFD's

bullmarket :)

[trader]

Hi Narkov

Tend to agree with you. I was thinking the same thing when I read money trees' post. I certainly place no credibility in accusations made from behind a nic in an environment like this, especially when the accuser then says the posts that are supposed to support his accusations have been deleted...yeah right.... :rolleyes: ...maybe they have, maybe they haven't, maybe they existed, maybe they didn't exist...who knows...who cares :)...but from where I'm watching if anyone makes accusations or statements about what someones else allegedly said or did without providing verifiable proof to support their statements then imo they are leaving themselves wide open to being thought of as liars, since no-one is under any obligation to blindly believe any unsubstatiated statements.

Anyway, the main purpose of this post was to highlight an additional risk to CFD trading which may or may not have been mentioned so far (I haven't read all the posts in this thread). I read in the old Shares mag a few months back, when they talked about the pros and cons of CFD's, that in the unlikely event a stock is permanently suspended, delisted, goes belly-up or whatever then you could most likely lose a lot more than your original 10% or whatever stake. If a company goes belly-up you will most likely have to still repay the 90% margin you borrowed from CFD provider. So please keep this in mind if CFD trading speculative stocks.

Personally, CFD's don't suit my objectives or risk tolerances so I don't touch them, but I see they are becoming popular. I suppose for traders (and even investors I guess) they make it much easier to short trade stocks, trade market indices, foreign companies...and maybe even bet on the proverbial two flies crawling up a wall :D. But unless one fully understands how the mechanics behind a CFD trade work and the concept and risks associated with highly geared trades then they are very high risk imo.

Above is just food for thought and good luck to those using CFD's

bullmarket :)

I agree, from what I understand of CFDs even if the stock drops a bit you have lost your money. Look at CDO in 3 months they might be back up again (even though I don't think so) but if you had CDFs in this stock you might have lost your money.
PS I saw that post that TREE is talking about.

[bullmarket]

Yes agree trader,

I would assume that before someone entered into a CFD, or any leveraged trade/investment for that matter, they realised that with gearing at say 90% a 10% rise in capital value doubles their initial stake and a 10% drop in capital value wipes out their initial stake in total.

How one manages that capital risk, re position size, is up to each individual and their objectives and risk tolerances (which are hopefully written down somewhere in a TRADING PLAN) :D .

Re my comments on Narkov's post, I was speaking generally and just calling things as I see them with Narkov's post being the prompt. :)

cheers

bullmarket :)

[grossrealisation]

hi all
very interesting this post and I haven't been here for a while as I'm a little busy but money tree would know that as he seems to know more about my business then me.
couple of things
you have no business trying to set up a hedge fund (an illegal one at that).
never said I was setting up a hedge fund, if it was money tree that deleted the post maybe read it next time.
I asked if anyone was in a hedge fund and did they know what was probable returns (but money tree would know that as money tree seems to know everything in regard to this market)

You dont have the staff, I don't think he/she has any idea how many staff I have nor is it its business

the qualifications
I will judge this with contempt it deserve,
the experience
I think being in business for over 25 years and currently having 8 companies within my group does give what he or she would call experience.

and it seems not even a strategy (let alone a track record)
he,she or it knows alot more about me and my business then me.
maybe he,she or it needs to have a chat with our legal eagles and see who has a stratagy .
It costs over $1m a year in legal expenses to run a fund. You got that
money tree you seem to be able to know so much about me post an address and we will see about the mil.I'll take a barrister name that knows you if you want to keep an address 0ff the board.


give up this stupid pursuit now. (before ASIC deals to you)

asic has never nor would it have a problem with any on my companies but post an address and name and one of my eagles will have a little chat.
and as for
money tree yeah he did actually....in another thread which has been deleted because it violated ASIC laws.
I have asked the moderator to tell me the asic violations from asking if any was in a hedge fund and was told to repost which was of no use as the fund has closed( and I didn't join but money tree must know that also and he would also know that the fund is to be one of the largest in asia and is to be managed by the bank of china so I am at a loss how an asian to be listed hedge fund listed on a chinese exchange comes under asic but money tree knows so maybe he can tell us all so we will all know)
The reason for wondering returns is they don't know, they were telling me its historic was 41% so I thought I would ask any one in a fund and what are the returns.
The reason for not going for it was where the money was to be held,but again money tree would have already spoken to my accountant as he has a complete run down and should be able to post my p and l s for the last 3 years

as for his financial abilities......cant be that good if he has to steal someone elses idea.

not nice saying people steal, it gets you in deep water especially when you have no idea what you are talking about and if you post that the chinese took your idea you need to go and have a bex.
you'll be telling me you thought up the european property trust and macquarie stole your idea.
I would normally pass this type of post as just stupid put some people need to learn that just because this is a board doesn't mean you can post rubbish.
and instead of money tree should be rubbish bin :goodnight

[grossrealisation]

hi all
with regard to this post and cfd macquarie just did a very interesting seminar in macquarie house in Sydney and went for 2hrs
I have been talking with man for some time and get along well with them.
the one thing I see with macq is the guarentee stop loss and you can set it long or short it doesn't trail and it is across 275 long and 120 short top 300 stocks.
it is direct and can be run live the platform is free but there are a whole list of different costs as you require them they seem to be getting a little aggressive in this market.
I'm looking at kicking off soon into this market I have been tracking and refining my system to work for me and as with any project check out the different possible systems and trading groups.
the coin is in the air between macq and man the draw back I have with man is that your collaterale is pooled with all investors and any down turn is taken out of the pool and with macq its your macq bank account and collateral is taken from there.
put with man I have a couple of people within man who will assist with getting familar with my stratergy.
I have been tossing the thought of an account in each, run on two computers
man don't have guarantee stop loss they have stop loss.
views please

[wayneL]

Hi Grossrealisation.

There is no way to say this without causing offence, but here goes anyway: It is very difficult reading lots of text without proper grammar and punctuation.

I've read your posts three times and still don't really know what the hell is going on.

Also, when quoting somebody else (which I managed to deduce you are), you need to make it patently clear you are quoting someone, preferably with the "QUOTE" formatting, or using a different colour, or italics or something.

A rundown of the bulletin board code is HERE (http://www.aussiestockforums.com/forums/misc.php?do=bbcode)

This is not to insult, just to make sure you are making yourself clear to the reader.

Cheers

[blueskytrader]

hello all - new here

reading this cfd thread - and the undoubted negatives of cfd's as well as the positives - any sense in trading cfd's with no leveraging - for the lower commission costs? and ease of trading 'short' when required?

i believe you can set your leverage at nil? or at least set it low?

[wayneL]

hello all - new here

reading this cfd thread - and the undoubted negatives of cfd's as well as the positives - any sense in trading cfd's with no leveraging - for the lower commission costs? and ease of trading 'short' when required?

i believe you can set your leverage at nil? or at least set it low?

Blue sky,

I don't know if you can set it low, but you certainly can trade as if that were the case. In fact depending on your trading style, it is very wise to do so.

Cheers

[grossrealisation]

hi all
very interesting this post and I haven't been here for a while as I'm a little busy but money tree would know that as he seems to know more about my business then me.
couple of things
"you have no business trying to set up a hedge fund (an illegal one at that)".
never said I was setting up a hedge fund,
if it was money tree that deleted the post maybe read it next time.
I asked if anyone was in a hedge fund and did they know what was probable returns (but money tree would know that as money tree seems to know everything in regard to this market)

"You dont have the staff," I don't think he/she has any idea how many staff I have nor is it its business

"the qualifications"

I will judge this with contempt it deserve,
"the experience"

I think being in business for over 25 years and currently having 8 companies within my group does give what he or she would call experience.

"and it seems not even a strategy (let alone a track record)"

he,she or it knows alot more about me and my business then me.
maybe he,she or it needs to have a chat with our legal eagles and see who has a stratagy .

"It costs over $1m a year in legal expenses to run a fund. You got that"

money tree you seem to be able to know so much about me post an address and we will see about the mil.
I'll take a barrister name that knows you if you want to keep an address 0ff the board.


"give up this stupid pursuit now. (before ASIC deals to you)"

asic has never nor would it have a problem with any on my companies but post an address and name and one of my eagles will have a little chat.
and as for
"money tree yeah he did actually....in another thread which has been deleted because it violated ASIC laws."

I have asked the moderator to tell me the asic violations from asking if anyone was in a hedge fund and was told to repost.
which was of no use as the fund has closed( and I didn't join but money tree must know that also and he would also know that the fund is to be one of the largest in asia and is to be managed by the bank of china,
so I am at a loss how an asian to be listed hedge fund listed on a chinese exchange comes under asic but money tree knows so maybe he can tell us all so we will all know)

The reason for wondering returns is they don't know,
they were telling me its historic was 41% so I thought I would ask any one in a fund and what are the returns.
The reason for not going for it was where the money was to be held,but again money tree would have already spoken to my accountant as he has a complete run down and should be able to post my p and l s for the last 3 years

"as for his financial abilities......cant be that good if he has to steal someone elses idea."

not nice saying people steal, it gets you in deep water especially when you have no idea what you are talking about and if you post that the chinese took your idea you need to go and have a bex.
you'll be telling me you thought up the european property trust and macquarie stole your idea.
I would normally pass this type of post as just stupid put some people need to learn that just because this is a board doesn't mean you can post rubbish.
and instead of money tree should be rubbish bin :goodnight

I have put quote marks around money trees quotes.

[cubsfan]

One risk that hasn't been talked about is the financial stability of the provider.
Because CFD's are not guaranteed by the ASX, if the CFD provider was to go into voluntary administration then thats when the s*it hits the fan.

Unfortunately checking the financial status of a CFD provider is quite difficult as most are private companies. macquarie and etrade are an exception.

Also some CFD providers don't guarantee market prices so does that mean the CFD is a price maker and profiteering the difference?

[wayneL]

One risk that hasn't been talked about is the financial stability of the provider.
Because CFD's are not guaranteed by the ASX, if the CFD provider was to go into voluntary administration then thats when the s*it hits the fan.

Unfortunately checking the financial status of a CFD provider is quite difficult as most are private companies. macquarie and etrade are an exception.

Also some CFD providers don't guarantee market prices so does that mean the CFD is a price maker and profiteering the difference?

Actually it has, but a very important point and well worth raising again.

A very important point if working with a big pot.

[grossrealisation]

hi all

haven't seen anything from money tree for a while but in regard to his last post
and people stealing ideas maybe be needs to have a look and post his address

and instead of saying people steal ideas
The fund that I was enquiring about is now on different notice boards,
Macquarie Equinox Asia 2 and yes it is a hedge fund and no I'm not the originator and if money tree wishes to sue them for stealing ideas have a try.
have a look at the fund and if it was money tree that deleted my post then you will see that the returns were as I posted so for me to setup this type of fund is a joke.

I get information from lots of different markets but I unlike money tree check my information prior to investing and from the feedback I am receiving other people have given it a go.

most if not all the investment opportunities that come across my desk are not open market investments.
I am interested, that just because you register on a board and chalk up 150 posts or what ever.
you become a person that can work out if this is ok to postwithout understanding what you are passing judgment on.
I did mention to joe that just because some one doesn't understand this market (And I am yet to see that money tree does) then how can you delete a post that you don't understand.

hedge, caveat,cfd and debenture note trading are not some thing most traders do,
but this post was very specific and it did ask who is trading this market and as it is a stock trading platform I was not thinking I am posting to a mums and dad investor who have no clue but a trading platform.
for me the money tree's of this world need to go back to trading 1 dollar shares and leave the rest of us to ask questions on the real world of trading.
I don't have the time nor the energy to deal with the money trees of this world.
The coin is no longer in the air and I will be running with macq on cfd's but with regard to hedging I really think that any moderator/administrator if you really want people like me to come here and have alook at the site and give our opinion make sure that the people dealing with post have an understand of the subject in this case they didn't.
I don't repost, I haven't nor would I
as I don't have the time
because by the time I do ?
the deal is gone.
for the money tree's of this world they will always be the same and they will always wonder how, big he is or she is and how much he is worth or she is worth and how can I be like him or her.
well my answer is very simple you can't
this fund is closed and the next fund will be also closed to the money tree's of this world and to get into the group that gets it before its closed you have to be asked
and you haven't been.
I have.


so am I sorry for the money trees of this world
no
why
because first you must learn and deal and work your way up and just like cfd trading you must understand your market and then and only then trade.
I am moving into cfd trading and thats what this post was originally about but I put risk against return and I'm a High risk player and because of the guarentee stop loss have decided on macq.
for all those reading this post that have no idea what its about read back and for money tree get a life and when your net worth meets mine we will have a chat.
and for those who have a problem reading this post keep in the back of your mind the reason that you don't see many letters from kerry packer on ebay is he was dyslexic also and hated typing letters as people told him they couldn't understand him so he used the phone, I have two mobil's and only type on forum's.

[Lhotse]

I, like cubsfan, am concerned about the financial stability of the CFD providers. The first rule in trading is to protect your money. I found it is interesting when you ask the providers for their financial statements.

AFter the first response 'we are big and safe, no need to worry' etc very few will provide evidence. My suggestion is to dig and dig to find out WHO you are actually dealing with - what specific entity. You can be dealing with a subsidiary of XYZ bank that is a $2 company. Many of the CFD sales people DONT KNOW who the financial entity is !!! You are relying on the fact that XYZ bank won't let their reputation suffer and allow the $2 company to go into liquidation. Look no further than the Refco debacle to see what can happen to large listed companies.

In particular I was disturbed by some of the white label providers who simply badge other providers dealing platforms. Getting information about who exactly my credit risk is with is very difficult. For example dealing with ETRADE on CFDs I am actually dealing with Man FInancial. But which entity of the MAN Group are they and what is their credit worthiness and hence my exposure? I make no comment about Man's credit worthiness but simply use it as an example to highlight the difficulty in finding out information. Sure ETRADE is listed but in reality I am not dealing with them.

I did manage to get the financials from one provider but it took some time. This doesn't guarantee my funds but gives me a greater level of comfort than dealing with some $2 company that has little or no experience in managing the high levels of risk that CFD providers are dealing with.

Anone else had simliar experiences?

Lhotse

[wayneL]

Lhotse, cubsfan,

It looks like you both have done lots of research. Which providers do you feel are safe?

Surely Macbank would be one. Others?

Anyone else researched this?

Cheers

[Lhotse]

WayneL

There are 4 main providers:
CMC, IG MArkets, Man FInancial, Macquarie

From what I have found all others are some kind of white label (mainly Saxo Bank which is a Danish internet bank and doesnt itself have a licence to offer CFDs here)

CMC are privately owned and had no financials to provide
IG Markets are listed in the UK and have financials to provide
Man didn't provide financials but are part of a UK listed entity and hence look fine
Macquarie seem OK and are clearly listed here

Macquarie account opening is a right pain and their GStop is ridiculous and expensive.

Man and IG Markets are both good for me.

IG has a new deal where you can trade at 0.08% on their DMA platform so long as you do $2m worth of stock in the month. Platform & Prices are free.
MAN are 0.125% if you do a mill per month otherwise you get slugged $50 pm for the platform/prices.

Lhotse

[mit]

I have accounts with CMC and Mac Bank and Mac Bank clearly win hands down. The DMA model is far superior to the market maker model so even with the higher brokerage for Mac Bank, I think that I am far ahead of what I was doing with CMC.

In addition the reporting is more straightforward with Mac Bank. The P&L for CMC seems to be based on the time since mid-night GMT but even there it doesn't really seem to be correct and it takes a lot of time to reconcile.

If there is ever an error with Mac Bank I have been actually called up about them, CMC has had major system issues for days and never even list them on their web-site.

MIT

[wayneL]

Thanks Lhotse.....

OK so Man is ok

What about Man via Etrade. The reason I ask is that through them you can also trade stocks and options via the one account/platform... and I really like that webiress platform.

Any experiences? Anyone?

Cheers

[wayneL]

I have accounts with CMC and Mac Bank and Mac Bank clearly win hands down. The DMA model is far superior to the market maker model so even with the higher brokerage for Mac Bank, I think that I am far ahead of what I was doing with CMC.

In addition the reporting is more straightforward with Mac Bank. The P&L for CMC seems to be based on the time since mid-night GMT but even there it doesn't really seem to be correct and it takes a lot of time to reconcile.

If there is ever an error with Mac Bank I have been actually called up about them, CMC has had major system issues for days and never even list them on their web-site.

MIT

CMC is the root cause of me never using CFD's when trading ASX (they were the only ones available at the time) Without printing anything libellous, er....let's just say I've never personally liked their setup.

Cheeers

[wayneL]

Thanks Lhotse.....

OK so Man is ok

What about Man via Etrade. The reason I ask is that through them you can also trade stocks and options via the one account/platform... and I really like that webiress platform.

Any experiences? Anyone?

Cheers

I see man uses webiress too...hmmmm

[sails]

Thanks Lhotse.....

OK so Man is ok

What about Man via Etrade. The reason I ask is that through them you can also trade stocks and options via the one account/platform... and I really like that webiress platform.

Any experiences? Anyone?

Cheers

Hi Wayne,

I think you will find that option fees are very high with etrade when compared to OX. I use the combination of Morrisons (for Iress) and OX (where I do most of my option trading and where I also get frequent trader discount). I stopped trading with etrade a couple of years ago due to the fees and, also at the time, you could not enter an option order directly through Iress. They provided another window (accessible through Iress) where option orders were processed through their website and sometimes very slow to happen. Things might be different now though.

I don't trade CFD's so can't help much there - but have looked at it to hedge option trades, and found the fees are unaceptable when compared to the flat rates I get with OX and Morrisons. For example, to just buy 5000 CBA CFD's (covering 5 options)would be approx $220,000 worth of underlying -multiply that by their percentage based fees! Margin lending with Morrisons is a much better deal where I get the $30 flat fee.

Anyway, welcome to the world of daylight trading! Better lifestyle, but fees are another story. Let me know if I can help with any info re the aussie market.

Cheers,
Margaret.

[wayneL]

Margaret,

Thanks for that info....appreciated.

[Would Be Trader]

Does anybody know anything about Sonray Capital Markets?

They use the Saxo Bank platform like GET. They offer 10% margin for both long & shorts on virtually all of the ASX200 and quite a few of the ASX300.

I have been with them for few months and I find their service & platform pretty good.

However, after reading the various warnings in this thread about the importance of financial strenght of the providers, and the fact that I don't hear much about them in this and other forums (suggesting that they are not very well known), I am getting nervous and seriously considering my alternatives.

Any advice will be greatly appreciated

Regards to all

WBT

[wayneL]

Hi Wayne,

I think you will find that option fees are very high with etrade when compared to OX. I use the combination of Morrisons (for Iress) and OX (where I do most of my option trading and where I also get frequent trader discount). I stopped trading with etrade a couple of years ago due to the fees and, also at the time, you could not enter an option order directly through Iress. They provided another window (accessible through Iress) where option orders were processed through their website and sometimes very slow to happen. Things might be different now though.

I don't trade CFD's so can't help much there - but have looked at it to hedge option trades, and found the fees are unaceptable when compared to the flat rates I get with OX and Morrisons. For example, to just buy 5000 CBA CFD's (covering 5 options)would be approx $220,000 worth of underlying -multiply that by their percentage based fees! Margin lending with Morrisons is a much better deal where I get the $30 flat fee.

Anyway, welcome to the world of daylight trading! Better lifestyle, but fees are another story. Let me know if I can help with any info re the aussie market.

Cheers,
Margaret.


Margaret,

Thanks for reminding me about OX. Having had a look around the brokers, they are the best for options by a ludicrous margin. When will Aussie online options brokers get their act together?

Morrisons look great, they have basically replaced AOTonline. I would have no hesitation if I was only intrested in shares. But CFDs look attractive for my style of trading.

I was trying to contain all my trading to 2 accounts, 1 futures and 1 for shares/CFDs and options. Looks like I'll have to have 3 accounts. :rolleyes:

Cheers

[Lhotse]

Hi WouldbeTrader

I would ask the following questions if you are uncomfortable.

1. Who is my contract with? ie the actual entity. (I think its Sonray but not sure) Dont know who owns Sonray but you can probably do a company search.
2. How much capital do they have? Do they have a balance sheet they can show you?
3. What happens if they experience a large client loss? Or a September 11 scenario? Or internal fraud?
4. Who is holding my money and how safe is it?

My further advice is to get anything in writing. If it simply a saleman telling you something its not worth a cracker. I don't mean to sound patronising but some of the CFD sales people are... lets just say get it in writing!

Lhotse

[finnsk]

Does any of you have any experience with fpmarkets (http://www.fpmarkets.com.au/) I got offered a 0.1% trading fee on any monthly trading value.
They are using webIRESS and is DMA not market maker.

Thanks in advance

Finnsk

[Lachlan6]

G'Day Finnsk. I have only just started trading CFD's and find the product AMAZING to say the very least. Just finished reading a great book by Catherine Davey who makes some money trading short term, CFD's. She has a great system, whereby she follows basic support and resistance and trades by these basic rules holding stocks for at the longest two weeks. She tends to only trade in a handful of top 150 stocks, thereby paying less margin and also becoming more familiar with these companies movements on the chart.

In terms of using FP Markets, has been fine so far, great broker, and the IRESS system is brilliant. You do have to pay for it though, something I was initially reluctant to do, but now trading CFD's will not complain for a second. I am however aware of the possible MASSIVE downside however, if prudent stop losses are used then these will be minimised. Davey trades in some instances foolishly however on the whole is very careful not to over capitalise. Exiting times ahead, bring on CFD's :)

[LOVE_OPTION]

quick question to all

which is a better way to go for day trading, CFD or Future. regarding profit, speed of return.

also i understand all the leverage and risk. i just want to branch out from my option trading.

[Broadside]

It is a very interesting thread, I use CMC and made a little money the last 12 months betting on the NZD falling vs the Aussie and in the last 3 weeks went into MGX (already had a heap of physical shares) averaging up cfd from 66 cents all the way to 93 today....when you can average up using cfd it is a great product your equity increases which in turn allows you to get more shares, tempting to overextend though, you have to be careful.

I have only used half the equity I have built in this account, that is as far as I am prepared to go, if MGX plunges I have stop losses which will still see me far ahead of my average entry point. But I have been lucky and won't push my luck like this again, suffice to say I had great confidence in MGX's prospects and backed my instincts. But most shares don't explode the way MGX has recently, I probably got lucky and won't do this again. But I digress, the trades I have made in MGX using cfds (I now have about 8000 shares in MGX using cfd) I have never seen them placed in the underlying market (I get market depth from my online broker at the same time I place a trade with cmc to make sure the spread is okay).

CFD has always offered me the market spread in MGX yet I never see the depth in SEATS change so...how do they cover their risk?? I have read elsewhere they choose to cover sometimes in the underlying market depending on the trader's record, this sounds wrong, at least I hope so it is highly unscientific. Now if CMC are "spread betters" does this mean they don't hedge their positions in the underlying market....if most people use CFDs to go long then spread betters must lose heaps of money in a rapidly rising market or a rapidly rising stock, is this correct?

I can't get my head around CMC's business model, that is what concerns me, and also what would happen in the event of extreme market volatility, would the capital I have built up be safe? Mind you the beauty of the cfd providers is the enormous flexibility they give in times of such volatility.

Maybe I will take some profits in MGX tomorrow and take some equity out.

[Broadside]

oops I meant 80,000 shares I should have previewed post :mad:

[robots]

hello,

I dont believe they hedge or buy the physical stock for one moment.

Imagine there looking for people to lose more than win like most betting houses.

I dealt with IG Index on indices for several months, made small amount of money and then found it quite tedious to get money out from IG Index on second time.

They wouldnt reset my balance on platform to $0.00 (or transfer to bank account) for approximately 2 weeks.

Hoping i would place some "losing" positions I believe.

Would love to here from a CFD provider rearding this.

Thankyou
robots

[mlennox]

Direct Market Access (DMA) & Market Makers (MM)
When trading with a CFD provider who offers DMA, when a trader places a CFD order, the order is directly executed in the actual market, without intervention from a broker’s trading desk. A Market Maker is an institution which quotes firm buy and sell prices for a financial instrument, hoping to create revenue through the spread. The spread is the difference between the price the market maker is willing to buy a security and the price at which they are prepared to sell it. In simple terms the difference between the bid and offer.
PLEASE NOTE:

To determine the real cost of trading, if prices are requoted by Market Makers there may be a spread built into the bid and offer prices effectively increasing the cost of trading. Furthermore, with DMA you will not be subject to additional time delays as is required if market makers have to re-quote their spreads, especially when there is a large order to be placed. We note however, that with Direct Market Providers, they will charge a higher brokerage than for Spread Providers, but the Spread itself may exceed the difference in brokerage.

taken from www.cfdtools.com (http://www.cfdtools.com/au/)

answer your question?

[Broadside]

thankyou mlennox but my understanding is that CMC are marketmakers...but the spread they offer me is the same as the underlying market, certainly in the shares I have traded with them: MGX, TLS, BDG, PDN, BSG, CSM

robots thank you for your answer - but this hardly seems a scientific way for them to make money or cover their risk - in a casino the odds are in favour of the house, on the share market - even after transaction and interest costs - when the market rises rapidly the house must be losing (assuming most go long).....unless they have some way of hedging their position. I guess they must have deep pockets to ride out the current boom. Either that or there must be a lot more dumb punters than smart ones....I might go to their next seminar and ask them directly.

[robots]

hello,

a lot of people are always looking for a fall and with big rises people expect/hope for a fall, but it may not occur and hence their punt has not worked

if you go long MGX (for example), are they shorting the stock with another CFD provider, or with themselves?

why would the provider buy the stock if your making the profits?

looking for more understanding on CFD's

thankyou

robots

[professor_frink]

robots thank you for your answer - but this hardly seems a scientific way for them to make money or cover their risk - in a casino the odds are in favour of the house, on the share market - even after transaction and interest costs - when the market rises rapidly the house must be losing (assuming most go long)
they're the house- they don't lose. like in a casino, there will be times when the punters win, but over time, the house will always win. When you factor in the high brokerage and interest payments on a cfd position, you aren't that much better than being long a call option- a position that will be slowly eaten up over time if your not very right, very quickly. Not saying it can't be done- many people do, but you'll find most of those people have very good stop loss and money management procedures in place to negate some of the leverage and interest concerns

I guess they must have deep pockets to ride out the current boom. Either that or there must be a lot more dumb punters than smart ones....I might go to their next seminar and ask them directly.
Your bang on the money with the last part of that statement Broadside- alot of stupid people in this world- give them a highly leveraged instrument and in alot of cases it's only a matter of time :D

[Broadside]

sorry to say the house always wins does not give me confidence in a cfd provider's ability to cover its risk, granted there are other ways to get the same exposure using options etc but not all stocks offered for cfd are ETOs, cheers professor.

[Broadside]

and the brokerage is not high, $10 per trade and the spread is same as SEATS, a can see them burning in a rapidly rising market unless a significant proportion of their customers are shorting

[Kauri]

I only trade the DMA product now where obviously the providers profit is made on the interest and commission charged.
When I traded in CFD's there was no commission or interest charged,( what is the interest charged on?), the spread between the price quoted by the CFD provider and the price in the actual market, and also the spread between their buy/sell quotes is where they aim to make their money. What you are doing when you buy CFD's is Betting $x per point that the chosen instruments price will rise/fall, hence the term spread betting. Like any good bookmaker they know their exposure to any given share/instrument,sector,market, and either back their opinion and take on the risk or alternatively do the sums and hedge their position in the market accordingly. Just my understanding of how it works, no guarantees that I am correct.

[professor_frink]

Hi Broadside



I don't trade CFD's so can't help much there - but have looked at it to hedge option trades, and found the fees are unaceptable when compared to the flat rates I get with OX and Morrisons. For example, to just buy 5000 CBA CFD's (covering 5 options)would be approx $220,000 worth of underlying -multiply that by their percentage based fees! Margin lending with Morrisons is a much better deal where I get the $30 flat fee.
I was refering to the above situation- sorry didn't know they have started offering flat fees.


sorry to say the house always wins does not give me confidence in a cfd provider's ability to cover its risk,
Very good point. Nor should it. I said that refering to them hedging their position- the fact is that most traders lose over the long term, so it wouldn't make sense for them to hedge all the time, unless the trader has a good track record with them, in which case they can hedge and break even on the trade and still make a profit out of brokerage and interest.


granted there are other ways to get the same exposure using options etc but not all stocks offered for cfd are ETOs, cheers professor. Also a good point- Was the reason I looked at trading cfd's for awhile! It was only after I read through the PDS for some of these companies that I decided not to go ahead. I found it to be fairly disturbing reading, and would recommend to any aspiring cfd trader to go through the provider's PDS thoroughly before they begin.

[robots]

hello,

how do CFD providers hedge a traders position?

for example, if I short TLS , what do they do?

look forward to a response

thankyou

robots

[Broadside]

that is exactly the same thing I am wondering :D

[professor_frink]

hello,

how do CFD providers hedge a traders position?

for example, if I short TLS , what do they do?

look forward to a response

thankyou

robots

Don't know for sure, but one way they could do it is take the same position in the underlying share. For example if you are long a stock, they could also buy the underlying- if you make 3%, so do they, giving them a neutral result on the trade, with a profit after they charge brokerage and interest. Short- I'm not so sure on as it's not exactly a common thing on the ASX.
Don't know any of this for sure but so don't quote me on it!

[Porper]

Don't know for sure, but one way they could do it is take the same position in the underlying share. For example if you are long a stock, they could also buy the underlying- if you make 3%, so do they, giving them a neutral result on the trade, with a profit after they charge brokerage and interest. Short- I'm not so sure on as it's not exactly a common thing on the ASX.
Don't know any of this for sure but so don't quote me on it!


Trading with IG Markets this is exactly what they do.

For example if you bought 50000 MGX as a cfd they will place an order to buy 50000 in the market (supposedly anyway), whether they actually always do this I doubt, but that is my opinion only as I haven't checked this out.

[Broadside]

yes I understand they could hedge this way but I have never seen depth in SEATS change as a result of my trades so it makes me wonder

[YOUNG_TRADER]

Hi there,
Have been looking @ CFD's for awhile now am considering giving them a go.

I have beend looking at the main 4 providers,

IG, CMC, Macquarie and Man Finanacial

As far as resource stocks go, Macquarie requires a margin of between 10% - 45% (45% almost defeats the purpose of leverage), but are obviously secure because they are backed by Macquarie and offer DMA with some GSL and shorting,

CMC seem to be the most flexible ie very little margins required, huge leverage allowed (ie lose more :D) Stop losses?
They creat their own market spread? so not DMA, I gather that this is bad as they will always construct the spread so that they win long term.

Don't know much about IG or Man Financial


I would be interested to know how others are finding their CFD providers, how realiable is the software, how realiabe is the provider, how quickly do they transfer funds etc etc


Thanks in advance

[YOUNG_TRADER]

I really like IG markets,

Very low margins on resource stocks I like, much better tahn Macquarie and the allow GSL (with slight premiums)


I like!


How have people found IG Markets, especailly their L2 DMA System?

[Bobby]

I really like IG markets,

Very low margins on resource stocks I like, much better tahn Macquarie and the allow GSL (with slight premiums)


I like!


How have people found IG Markets, especailly their L2 DMA System?

Hi Young Trader,

How do you find them, when you need to get your Own money out quickly ?

Bob.

[stink]

HI All,

Having read this thread from start to its current life, i still have a question.

How is the actual CFD trade conducted? I mean i assume an investor makes the decision to buy or sell much the same as you would when trading a stock. But from that point how does the cfd trade differ?

I am aware of the risks of CFD's with leverage etc, and i have no intention of over extending just because the option is there. I have been trying to find some good reading material and it seems there is alot on the risks etc but cant find much on the actual process.

Cheers Stink

[robots]

hello,

you buy/sell at their current offer (cfd providers offer), which typically is around market price of the share/index (give or take a few points).

remember your are entering into a contract with the CFD provider, it has nothing to do with anybody else, your not buying/selling physical shares

then you sell/buy to close the position with your CFD provider and the difference is what loads your pocket or cleans it out

thankyou
robots

[stink]

So when you say within a few points do you mean within a few cents of the market price of the share in question?

Sorry about the dumb question mate!

Cheers Stink

[robots]

hello,

yes

for example, the CFD providers would show lets say BHP as

2750 (ie $27.50), everypoint (cent on the ASX) movement would influence your position

thankyou
robots

[porkpie324]

there seems to be a lot of talk on CFD spreads, i trade both shares physicilly and using CFD's, i use CMC markets and ASB securities for shares, i also use 2 computors working online at the same time. Now the quotes are exactly the same also when they change both change at the same time, i do know though that the brokerage is less for CFD's. porkpie

[Magdoran]

yes I understand they could hedge this way but I have never seen depth in SEATS change as a result of my trades so it makes me wonderHave you considered that they might be hedging in the futures markets and/or the ETO markets (both stock and index options), or alternatively you may not see all the order transactions in the CFD itself? Don’t forget they cover a range of markets.

They could also be dealing in the OTC markets using a range of structured financial products all over the world; perhaps they hedge in other countries where there is “spread betting” like in the UK for example. It’d be interesting to know if anyone has inside knowledge on what the strategies for various CFD providers are.

What concerns me is how well they are underwritten/hedged in the event of a crash.


Regards


Magdoran

[rookie]

Guys,

This thread is quiet interesting and also very useful.
I read all of the posts but I still have some questions left unanswered about trading CFDs.

1. CALCULATING THE RISK.

How can I calculate my total expenses on CFD trading?
I had a look at charting tool of CMC Markets and it is quite a joke. That's good for someone who knows nothing about charting but drawing lines and curves keeps him happy.
Saying so I think I still would need to pay for quality EOD or intraday price feed. That costs for about $300-400/year.

Just to keep the calculation simple and because I'm not very well capitalised, let say I have $10K to try my luck on CFDs.
So, I came up with the following calculation.

$10 000 * 0.01 = $100 to risk on a single trade (1% of $10 000)
$100 - $20 (buy&sell commissions) = $80 left to a single trade.
I have a full time job so, I just can't look at the price changes on a daily basis. That's why the only option left for me is position trading.

With $80 margin and 95% leverage I can buy $1600 worth of CFDs.

Let's say, the average holding period of a long position is about 5-10 days.
The overnight rate that the CFD provider charges is 8% (Current RBA rate=6% + 2)
Interest on a long NAB position:
$1600 / $36 = 44 share CFDs

(8%/360 = 0.02222) * $36 * 44 = $3.51 / night

$3.51 * 5 days holding = $17.5
$80 - $17.5 = $62.5 to invest ...

If I want to leave the position open for a couple of days then I should put GSLO just slightly below the buy price I guess to protect my capital.
That usually costs heaps of money.
Do you guys buy it before the market closes to protect your position from a sudden gap on the next day?

Becuse I have this tiny amount of margin to invest into a single position I must put a very tight stop loss order to every trades,

soeven the smallest price movement into the wrong direction would close out my trade.

Is my calculation correct? Is there any other expense that I have to calcualte with in order to aviod nasty surprises?

I know that a lot of professionals recommend to have at leat $50K that someone can afford to lose in CFDs, but if I had that money then I would by my first home instead of risking it on CFD trading...

2. HOW TO AVIOD/CALCULATE SLIPPAGE?

Slippage is an unknown factor when someone jumps into a position except if it's a blue chip stock. That case the market depth and the volume should give a good indication that at what price we can expect to close the position.
Is it really the case? Can I still somehow prepare for the most likely sell/buy price before I open a long/short position?
I guess I have to calculate my risk on every single position with the most likely closing price.

3. WHAT ARE THE TAXATION REGULATIONS ON CFD TRADING?

My wife doesn't have any taxable income as she's staying at home with the kids. Should I open the account under her name to get the tax advantages or this sort of income is taxed on the highest rate?

4. EX. DIV DATES?

Do you guys check the ex. div dates before you open a long/short position? Do you take this into account to calculate your risk/revard ratio?

5. WHAT'S THE CFD PROVIDER'S REAL INTEREST?

AFAIK the CFD providers are not liable to hedge their customer's position on the stock market. Does it mean that the system has been built around an unfair game? The interest of the CFD providers is to wipe out it's its cusmers' account because they want more then just the commission and extra fees and charges.
I'm pretty sure they even have in-house traders to move the prices by only 1-2 ticks to get most of the positions with tight stop loss limits out.
They don't want to risk the positions of their well capitalised big customers of course that pay a lot of money to open and close heaps of trades. But these customers can afford to have a much wider stop loss order or not to have any at all, then the DIY customers.
Am I just too paranoid?

6. MISC

What happens in that unlikely case when I can't sell my CFDs because the provider suspended the trade of them?

Thanks guys in advance! I really appreciate your help and sorry if I asked a lot of stupid questions.

[scsl]

Let's say, the average holding period of a long position is about 5-10 days.
The overnight rate that the CFD provider charges is 8% (Current RBA rate=6% + 2)
Interest on a long NAB position:
$1600 / $36 = 44 share CFDs

(8%/360 = 0.02222) * $36 * 44 = $3.51 / night

$3.51 * 5 days holding = $17.5
$80 - $17.5 = $62.5 to invest ...

-----

3. WHAT ARE THE TAXATION REGULATIONS ON CFD TRADING?

My wife doesn't have any taxable income as she's staying at home with the kids. Should I open the account under her name to get the tax advantages or this sort of income is taxed on the highest rate?

-----

I'm pretty sure they even have in-house traders to move the prices by only 1-2 ticks to get most of the positions with tight stop loss limits out.

rookie, the interest you calculated is incorrect. Although unlikely, let's just assume the NAB sp stays at $36 and the total size of the open position is $1,600. The interest per day would equal $0.35.

1600*8% = $128
128/365 days = $0.35

So if you held for 5 days, 0.35*5 = $1.75 would be debited from your account.

-----

Profits from CFDs is classified as income and is taxed the same way capital gains and dividends from owning traditional shares are. Having said that, expenses associated with trading can be deducted.

-----

This rumour that CFD providers widen spreads could be true. I remember asking my client adviser at IG about this and he said that it still happens sometimes but is a lot less frequent these days. I also have an account with CMC and having checked the prices of these two providers compared to the underlying market on seperate screens, I have yet to see this in action.

cheers,
scsl

[TraderPro]

hello,

how do CFD providers hedge a traders position?

for example, if I short TLS , what do they do?

look forward to a response

thankyou

robots

Correct me if I am wrong...

I think DMA players like IG Markets and Mac Bank CFD's actually place real orders on the markets to hedge themselves....

But with CMC Markets and other marketmakers they either accept the risk, synthesise the market prices and perhaps also buy the underlying stock to hedge themselves...

[porkpie324]

rookie, if this can help, i have been trding CFD's now for 62 days i use CMC mkts, i went to a 1 hr introdution promo talk, was quite impressed so i opened an a/c there and then, i trade both shares and the SPI, i think it helps to have some sharetrading experiance and know which shares to trade, at the moment i'm keen on the nickel stock CFD's so i stick to them,up to now my a/c is up quite substantially so i'm quite happy to contiue on the CFD route.
as for the CMC mkts platform i find it ok, but i do use metastock for daily data and to make decisions on which stocks to trade and cmc mkts platform for intra day trades. the thing i like about CFD's is you can trade small ammounts especcially on the SPI where you can trade just 1 cfd for a dollar a pip so its a good place to start, porkpie

[rookie]

Guys,

Thanks for all of your help so far.

I had a chat with one of the CMC Markets dudes recently when I asked him about hedging the customers' position on the market and the rumour that they're changing the spread for their favour.
He said the positions are not always hedged but couldn't give me a clue of course about the rate.
Widening the spread is an urban legend and they only offer real market spreads for their customer - he said.

If that's true then they must have huge number of transactions every day where they can profit from the commissions otherwise the majority of the positions should be closed out out of the money to be able to generate decend income for the CFD provider.
I assume ASIC has throughly investigated their business practice before they issued the licence for these companies...

Anyway, it's good to know that you can get a good profit by trading CFDs.
That means it's still someting that's worth to take a little closer look.

[bingk6]

Guys,

Widening the spread is an urban legend and they only offer real market spreads for their customer - he said.

It may be an urban legend for stock CFDs, but I suspect that is not the case for Index CFDs. How else can you explain why there are no brokerage charges for trading Index CFDs :confused:

[cathye]

I have been trading CFD's with Man Financial for 1 year now. I prefer Man as when I place an order with them I can see my order placed in the market in a second. Their brokerage rates are competitive at 0.125% of total CFD trade (minimum of $12.50). I checked out CMC Markets (Market Maker) but was told to be careful with this firm as they widen the gap or spread between the buying and selling prices. Also checked out IG Markets but was advised I couldn't move the stop loss price, that stop loss orders were fixed on the day you book the trade. The biggest mistake I have made with CFD's is trading in low liquidity shares. I now only trade CFD's on the top 100 shares with a 5% margin and only certain shares that have a 10% margin.

[stink]

Hi Cathye,

I see this is your first post.

On your signature, i am not sure what the forum rules are in relation to promoting this type of stuff.

Personally i dont think this is the place for it, but i dont make the rules.

Regards Stink

[porkpie324]

personally, i don,t have a problem with comparisons, in this case CFD providors is'nt that one of the reasons for "forums", porkpie

[stink]

personally, i don,t have a problem with comparisons, in this case CFD providors is'nt that one of the reasons for "forums", porkpie

Hey Porkpie,

no problem with the post mate, i was referring to the signature.

But like i said i dont know the rules on this stuff, its just my opinion.

Cheers Stink

[joslad]

I've been trading CFD's for a while now. No problems to date and making a bit of money. However, a couple of points/observations I would make following my experiences, which hopefully will enlighten a few considering their options with trading CFDs.

I have been using etrade for my normal share trading for the past few years and have no complaints - good service and reliable trading platform availability.

E-Trade also offer CFD trading, so it seems logicial to use them for CFD's too - so you can trade both shares and CFD's via the same webiress platform simultaneously. When you open your CFD account with etrade, the account is actually opened with MAN Financial, but as I say all the trading is done via etrade. They make it patently clear as the forms have MAN on the letterhead etc. This was not a major problem.

If you have a problem you call etrade, who in turn call MAN (at least I think this is how it works). This double handling was time consuming and was never successful as responses were always slow. I once queried the withholding tax I was paying. As a New Zealander, non resident in Australia, I was entitled to a lower rate to be charged on interest received. Despite assurances that this had been adjusted, it never was - a quick calculation showed that I was paying 50% and not the lessor rate. I gave up trying to get it changed in the end and decided to change providers. The main reason for changing, though,, was the more expensive brokerage charged by MAN.

MAN's brokerage rates were expensive. Man charged 1.25% for CFD trades. There's was also a minimum of around 17 dollars - cant remember the exact minimum. (these rates may have changed now.)

I now use FPM (First Prudential) for CFD trading. Cheaper brokerage rates (1%) and minimum trade rates ($10). Think the difference is minor?? It isn't and the difference in rates can be the difference between profit and loss. If you do several trades per day, the brokerage adds up, so don't pay more than you need to.

FPM also use the webiress system, so the same trading platform I was used to using at etrade - a major plus. Its worth noting that FPM will charge you another $30 a month if you want live news (on top of the usual $55 monthly fee).

As I still trade with Etrade for my normal share trading (via webiress/power e-trade), I get the news via etrades webiress. Also worth noting, webiress won't run twice/simultaneously on the same computer, at least not mine. So you need a 2nd computer if you use two webiress providers, like I do.

Having DMA, direct market access, is most important! With MAN and FPM, when you open a CFD trade, the underlying shares are purchased directly from seats. There is no human intervention and you are not buying them from the provider. If you are monitoring the market depth, you will see the shares disappear from the respective queues immediately, when you buy and sell.

Some providers don't provide DMA access to the asx. They instead, provide their own prices. This is dangerous because you "may" not be observing the "real" market depth situation and you are not buying the actual shares.

Just to make the point, the memory is fuzzy this time of night, so the rates quoted for etrade and Man will need to be checked if you are doing current comparisons.

While the leverage provided when trading CFD's is great, I'm sure you are all aware that it can bite you when the price goes against you. Holding live trades overnight can be a real gamble. If the price gaps up/down against you it can be expensive. Also, holding Long trades overnight incur an interest charge - short trades get you a credit. So, usually, it is best to exit the trade before the close and buy in again the next day. This is why brokerage rates are important - they add up!

regards

[robots]

hello,

whats it matter whether they hedge or not

CFD: contracts for difference, you win/lose depending on which way you have taken your position

you never will own/sell the share certificate with CFD

you have a contract with IG, ManFin or MAcBank for the difference

dont know why they carry on with all the cover

thankyou
robots

[MichaelD]

whats it matter whether they hedge or notBecause if we can revel in the safe feeling that they hedge in the market, it's possible for us to deny to ourselves for a little longer that CFD providers are just bookmakers.

[Bobby]

Why are CFDs banned in the U.S.A. :confused:

Bob.

[wayneL]

Why are CFDs banned in the U.S.A. :confused:

Bob.

Bobby

A guess.... lobbying from the futures exchanges who have their single stock futures product.

[Bobby]

Bobby

A guess.... lobbying from the futures exchanges who have their single stock futures product.
Thanks Wayne :)

Regards
Bob.

[bunyip]

I have been trading CFD's with Man Financial for 1 year now. I prefer Man as when I place an order with them I can see my order placed in the market in a second. Their brokerage rates are competitive at 0.125% of total CFD trade (minimum of $12.50). I checked out CMC Markets (Market Maker) but was told to be careful with this firm as they widen the gap or spread between the buying and selling prices. Also checked out IG Markets but was advised I couldn't move the stop loss price, that stop loss orders were fixed on the day you book the trade. The biggest mistake I have made with CFD's is trading in low liquidity shares. I now only trade CFD's on the top 100 shares with a 5% margin and only certain shares that have a 10% margin.

I use IG for trading CFD's on US stocks and there's no problem with moving the stop loss. I'd be surprised indeed if you can't do the same with ASX stocks.
I think you may have misunderstood what IG told you. Unless they have a rule that you can't move the stop on the day you place it, you must wait till the following day.
If this is the case then such a rule shouldn't concern you.....moving the stop on the same day you place it is only going to cause you to get stopped out frequently. You need to give a trade a few days to work out and make a decent move in your favour, before you go fiddling with the stop.

Bunyip

[kr1zh]

I use IG for trading CFD's on US stocks and there's no problem with moving the stop loss. I'd be surprised indeed if you can't do the same with ASX stocks.
I think you may have misunderstood what IG told you. Unless they have a rule that you can't move the stop on the day you place it, you must wait till the following day.
If this is the case then such a rule shouldn't concern you.....moving the stop on the same day you place it is only going to cause you to get stopped out frequently. You need to give a trade a few days to work out and make a decent move in your favour, before you go fiddling with the stop.

Bunyip

i have no problems too with moving/changing limit & stop. it both works via web-based IG Market website or mobile dealing. my last trade was this friday and i did change my limit & loss while i were in a position.

[rookie]

Guys,

"Bourse in world first with CFD exchange"
http://www.theaustralian.news.com.au/story/0,20867,20367318-643,00.html

I don't really understand the short/long-term consequences for DIY traders of this step from SFE.
Could any of you CFD-savvy gurus explain me what we can expect from next April? Cheaper commissions, higher volume, wider spreads, etc?

[rozella]

FPM also use the webiress system, so the same trading platform I was used to using at etrade - a major plus. Its worth noting that FPM will charge you another $30 a month if you want live news (on top of the usual $55 monthly fee).

As I still trade with Etrade for my normal share trading (via webiress/power e-trade), I get the news via etrades webiress. Also worth noting, webiress won't run twice/simultaneously on the same computer, at least not mine. So you need a 2nd computer if you use two webiress providers, like I do.

regards
Interesting comment there joslad. I suppose it is a conflict of interest for etrade to allow FPM to use the same platform as they go with Manfinancial, however, I am also with FPM & this is linked to my webiress platform that I use from AOT/Comsec linked to a marginlender, so no extra fees are involved for the CFDs even though it is a different provider

[Bobby]

Just found that IG markets require a 15 point diff to place a GSL ~~ SHeeze !!

What do the others want ? regarding GSLs :confused:

Bob.

[alankew]

what is the opinion of trders with reference to CFDs and the length of a trade.Do people think it is best to be in and out as quick as possible and thus reducing the interest paid or go long and get a good rise in price and the interest is more than taken care of

[barney]

what is the opinion of trders with reference to CFDs and the length of a trade.Do people think it is best to be in and out as quick as possible and thus reducing the interest paid or go long and get a good rise in price and the interest is more than taken care of

Hi Al (I'm also new here so take this with a grain of salt) I think it largely depends on what you feel comfortable with.........If you are a "trading" kinda guy and like action then short trades may better suit you, but if your analysis of a stock is sound and you are confident with their longer term prospect, then I would hang on at least until your "trend" has been proven, then hang on longer while ever it is "behaving" itself.

I have just signed with Green CFD....I dont know much about them at this stage, but gut feeling, I like the way they operate....Phone assistance is V good/helpful (even friendly!!..........unusual in this day and age eh??)..........and this is what impressed me about them.....they will let you sign up for their "training academy" (8 weeks) (It is optional if want to sign for the t/acad.(I personally didn't) They also give you $100 in your account to do up to 100 trades with no fees...They figure they want your business long term so the better "trained" you are the more money they will make in the long term .................Now that sounds like a Co. who is trying to do the right thing to me, but as i say, only early days for me; After I have used them for a while I'll post further . (Anyone else had exp. with "Green". . ??)

PS And yes they are DMA (Platform is a little slow to load in but once loaded seems good so far) Cheers.

[dewdrop]

:( Sharing my experience:
I'm an ETO (options) trader on some of the ASX top 20 from 1 hour to 7 days max.

I traded cfds for the first time last month (with 2 providers) but got burnt sadly due to not paying enough attention to the COST of both cfd brokerages and 1% GSL !!! Those brokers sure make lots of money. Example: My last cfd trade on 4000 x ANZ cfds going long was supposed to profit $1300 but the GSL + brokerages (entry and exit) + interests totalled to more than $1000!!!! With costing like this, a few losses could have sent me broke in no time. Boy, do I need serious cfds education. If I were in options, the same trade would've cost me approx $100 in OCH and brokerages, with a nice profit of approx $800 (delta: 0.6+)

Anyway, I figured that Im not the one to leverage a cfd trade without GSL and so I went back to ETO. I feel very at home now.

If anyone has any suggestions, please feel free to comment.

[Magdoran]

:( Sharing my experience:
I'm an ETO (options) trader on some of the ASX top 20 from 1 hour to 7 days max.

I traded cfds for the first time last month (with 2 providers) but got burnt sadly due to not paying enough attention to the COST of both cfd brokerages and 1% GSL !!! Those brokers sure make lots of money. Example: My last cfd trade on 4000 x ANZ cfds going long was supposed to profit $1300 but the GSL + brokerages (entry and exit) + interests totalled to more than $1000!!!! With costing like this, a few losses could have sent me broke in no time. Boy, do I need serious cfds education. If I were in options, the same trade would've cost me approx $100 in OCH and brokerages, with a nice profit of approx $800 (delta: 0.6+)

Anyway, I figured that Im not the one to leverage a cfd trade without GSL and so I went back to ETO. I feel very at home now.

If anyone has any suggestions, please feel free to comment.Hello dewdrop,


Your experience certainly resonates with my estimation. Have a look at my comment in “The idiots way to options riches” for a more detailed appraisal. Your comment adds to the list of liabilities on the CFD ledger, doesn’t it?


Regards,


Magdoran

[Bobby]

[QUOTE=dewdrop
I traded cfds for the first time last month (with 2 providers) but got burnt sadly due to not paying enough attention to the COST of both cfd brokerages and 1% GSL !!! Those brokers sure make lots of money. Example: My last cfd trade on 4000 x ANZ cfds going long was supposed to profit $1300 but the GSL + brokerages (entry and exit) + interests totalled to more than $1000!!!!
If anyone has any suggestions, please feel free to comment.[/QUOTE]

Hello Dewdrop,

Please let us know who are these two providers ?
I 'd like to look into this !

Cheers
Bob.

[dewdrop]

Hi everyone,

It is not my intention to discredit those providers since the whole experience was my decision. (besides, I have agreed to sign those agreement papers before I start trading with them, right?) The point was, I should have understood the instrument and the broker’s fees better (applying money and risk management) prior to entering the trade.

My first provider was a very popular one (that advertises aggressively - usually on a glossy page advertisement at the back of a trading magazine) It permits 5% GSL level minimum. Then I opted for another provider (one of the richest bank around – take a guess) that allows for much tighter GSL (1% minimum) and free trailing cost. The 1% GSL alone on the ANZ trade mentioned was $559. The wider the GSL the cheaper it gets.

For a medium to long term trading strategy (min 3 month run) – provided the stock goes your way during the period, the 1% GSL level would’ve been fantastic. But let’s face it, the market has been uptrending strongly since 2004. During the period of high volatility (e.g 1999 to 2001), it may be very tough to expect consistent 3 month runs. But then again, one could change their trading style and instrument to suit the market.
Nevertheless, I am one who likes to go on a break without having any open position and hence drawn to the “swing” style of trading.

Just couldn’t believe my own stupidity. Oh well.

[Bobby]

Hi everyone,

It is not my intention to discredit those providers since the whole experience was my decision. (besides, I have agreed to sign those agreement papers before I start trading with them, right?) The point was, I should have understood the instrument and the broker’s fees better (applying money and risk management) prior to entering the trade.

My first provider was a very popular one (that advertises aggressively - usually on a glossy page advertisement at the back of a trading magazine) It permits 5% GSL level minimum. Then I opted for another provider (one of the richest bank around – take a guess) that allows for much tighter GSL (1% minimum) and free trailing cost. The 1% GSL alone on the ANZ trade mentioned was $559. The wider the GSL the cheaper it gets.

For a medium to long term trading strategy (min 3 month run) – provided the stock goes your way during the period, the 1% GSL level would’ve been fantastic. But let’s face it, the market has been uptrending strongly since 2004. During the period of high volatility (e.g 1999 to 2001), it may be very tough to expect consistent 3 month runs. But then again, one could change their trading style and instrument to suit the market.
Nevertheless, I am one who likes to go on a break without having any open position and hence drawn to the “swing” style of trading.

Just couldn’t believe my own stupidity. Oh well.
Thanks for the info` Dewdrop !
I now know exactly who they are now.

Cheers
Bob.

[barney]

Hi guys, I posted this Question in another CFD thread, but no reply as yet so I thought I'd put it here

Anyone else noticed their CFD provider sometimes has "buy only" status on particular stocks (ie you cant sell them if you own them) and sometimes for "days" on end...............is this normal practice?..........why would this be?? :confused: Barney

[coyotte]

Hi guys, I posted this Question in another CFD thread, but no reply as yet so I thought I'd put it here

Anyone else noticed their CFD provider sometimes has "buy only" status on particular stocks (ie you cant sell them if you own them) and sometimes for "days" on end...............is this normal practice?..........why would this be?? :confused: Barney

Are U sure your got that right ?

Think U will find it means U can't SHORT them !

Cheers

[barney]

Are U sure your got that right ?

Think U will find it means U can't SHORT them !

Cheers


Yeah sorry Coyotte....I was talking then wrong language.............Thats right you can only "go long" on the stock.............you cant "short it".....why would that be?

PS If you were long on the stock, would you still be able to close the position out with a stop loss/limit order, even though there is no "short" available?? Thanks Barney

[coyotte]

Barney :

Shorts are regulated by ASX , the Stock must have a min Capalisation and only a certain percentage of it's shares can be Shorted :

The current list is advaible on the ASX web site .

Suppose the CFD providers would be protecting themselves against big players ,hence they would be following the ASX rules up to a point.

Of course you can place a STOP on any order --- thats not going SHORT


Cheers

[MichaelD]

Shorts are regulated by ASX , the Stock must have a min Capalisation and only a certain percentage of it's shares can be Shorted :
True, but this is not relevant to CFD providers who, even when matching the underlying quoted spread, are still acting as market makers (i.e. they don't have to hedge in the underlying market - and indeed most of the time do not, contrary to popular belief).

I'd suggest that LONG ONLY for a CFD provider would relate to the risk exposure they have to shorts already in a given position. i.e. they don't want to take any more short bets.

[barney]

True, but this is not relevant to CFD providers who, even when matching the underlying quoted spread, are still acting as market makers (i.e. they don't have to hedge in the underlying market - and indeed most of the time do not, contrary to popular belief).

I'd suggest that LONG ONLY for a CFD provider would relate to the risk exposure they have to shorts already in a given position. i.e. they don't want to take any more short bets.


Thanks Coyotte and Michael for the input.

Can I ask, if the CFD provider is "concerned" about taking on more "short" positions, does this indicate that they percieve the sp of this stock may drop more, or rise more?...or is this totally irrelevant, cause they are simply dealing with numbers/mathematics/making a profit..........just can't quite get my head around this atm...............all i can figure is, that if a CFD provider will only short/long a stock, could that possibly be an indicator of some importance re the future movement of the stock?? Thanks Barney.

[robots]

hello,

dont look too much into what a cfd provider does or doesnt do

you are at their mecry, it is a contract with them and as such they are setting the rules

if you want to short or go long then go for it, just understand their rules

I like the spread betting IG Index

thankyou
robots

[MichaelD]

all i can figure is, that if a CFD provider will only short/long a stock, could that possibly be an indicator of some importance re the future movement of the stock?? Thanks Barney.Nobody, anywhere, ever can predict what a stock will do tomorrow with anything more than a random chance of being right or wrong. A coin toss, a dart throw and a monkey are just as profitable as the highest paid analysts, if not more so.

The sooner you accept this as true the sooner you are able to come to terms with the consequences of this for trading and the sooner you will become consistently profitable.

Exits make the money, not entries. You will not find (much of) an edge exploring entry strategies. You are FAR FAR better off choosing an exit method that suits your trading style and instrument and applying that consistently.

[barney]

Nobody, anywhere, ever can predict what a stock will do tomorrow with anything more than a random chance of being right or wrong.

The sooner you accept this as true the sooner you are able to come to terms with the consequences of this for trading and the sooner you will become consistently profitable.

Appreciate that Michael, just trying to understand why my cfd provider will only "long sell" a particular stock............If they won't "short sell" it, does that indicate that they have a "vested" interest in the stock, or have their "clients" put so many stop losses/guaranteed stop losses on their previous "long" orders, that are not prepared to take "short" orders because they can't "guarantee" the price???........Just a bit confused as to why they need to do this??...........(I thought CFD providers simply made their profits by "benefiting " from the "difference"/ ie They cannot lose, regardless of the sp ..........as I say, Can't quite work out why some stocks can't be "shorted" while most others can????..............Can you explain further????

[MichaelD]

just trying to understand why my cfd provider will only "long sell" a particular stock............If they won't "short sell" it, does that indicate that they have a "vested" interest in the stock, or have their "clients" put so many stop losses/guaranteed stop losses on their previous "long" orders, that are not prepared to take "short" orders because they can't "guarantee" the price???CFD providers are bookies. If enough people bet on a given horse, then a bookie will expose themselves to the risk of a lot of people being right - to a risk of losing a significant amount of money.

How does a bookie handle this? They change the rules (i.e. odds).

Apply the above to a CFD provider;

I'd suggest to you that the reason a CFD provider will not take a short sell order on a given position is if a significant number of their clients already have short positions in that stock in comparison to long positions.

They don't want to take the risk of too many people being right so they simply won't take your bet.

NOTE: I have no special knowledge of CFD providers other than what I have been able to discern from comparing action on my CFD provider's screens with concurrent underlying market (in)action and from info I have gleaned from very rare posts from what appear to be true insiders. For all I know, I could be completely wrong.

[barney]

CFD providers are bookies. If enough people bet on a given horse, then a bookie will expose themselves to the risk of a lot of people being right - to a risk of losing a significant amount of money.

How does a bookie handle this? They change the rules (i.e. odds).

Apply the above to a CFD provider;

I'd suggest to you that the reason a CFD provider will not take a short sell order on a given position is if a significant number of their clients already have short positions in that stock in comparison to long positions.

They don't want to take the risk of too many people being right so they simply won't take your bet.

Hi again Michael, I might have this all wrong, but I was under the impression that CFD providers were more like "margin loan" operators as opposed to "bookies"...........They profit regardless of whether the "punter" is right or wrong??...........If lots of people "short" a stock, and the price does go down, they don't lose money, any more than if the stock went up, do they? They simply buy or sell the stock on our behalf, and charge interest a couple of % above the going reserve rate, on settlement..............I'm guessing that you are right re the "significant number of clients" short selling, and what this may be doing is making the "on screen sell/short order" an unrealistic price for them to "match/guarantee" due to the number of current orders already "below" that price...................Just for the point of the exercise, I am talking about PDN, which over the last couple of days would not seem to have been a stock to be "shorted" to any great degree...............appreciate your input, still slightly unsure though.....Cheers Barney.




Thats kind of what I was guessing...............still seems a little odd considering a CFD provider makes money whether the "punter" is right or wrong (they still collect their "interest" on the margin/leverage they have loaned the money out at, whether the price goes up or down

[MichaelD]

They simply buy or sell the stock on our behalfThey do not buy or sell the underlying as a general rule. Why would they themselves place losing bets in the physical market, since the majority of punters and bets are nett losers? Much more profitable to simply let us lose our money hand over fist to them.

On top of that, they skim their % interest off the entire position size, including our money, not just the margin %.

They want you to think they buy and sell on your behalf in the physical market so you remain deluded that they are brokers and not bookies.

[barney]

They do not buy or sell the underlying as a general rule. Why would they themselves place losing bets in the physical market, since the majority of punters and bets are nett losers? Much more profitable to simply let us lose our money hand over fist to them.

On top of that, they skim their % interest off the entire position size, including our money, not just the margin %.

They want you to think they buy and sell on your behalf in the physical market so you remain deluded that they are brokers and not bookies.

Thanks again Michael,
I'm with you now......This adds a whole new risk to CFD's I wasn't aware of....no wonder people have been warning me to be careful trading with them.........thanks for the explanantion..All the best, Barney

[mikeg]

Originally Posted by dewdrop
Sharing my experience:
I'm an ETO (options) trader on some of the ASX top 20 from 1 hour to 7 days max.

I traded cfds for the first time last month (with 2 providers) but got burnt sadly due to not paying enough attention to the COST of both cfd brokerages and 1% GSL !!! Those brokers sure make lots of money. Example: My last cfd trade on 4000 x ANZ cfds going long was supposed to profit $1300 but the GSL + brokerages (entry and exit) + interests totalled to more than $1000!!!! With costing like this, a few losses could have sent me broke in no time. Boy, do I need serious cfds education. If I were in options, the same trade would've cost me approx $100 in OCH and brokerages, with a nice profit of approx $800 (delta: 0.6+)

Anyway, I figured that Im not the one to leverage a cfd trade without GSL and so I went back to ETO. I feel very at home now.

If anyone has any suggestions, please feel free to comment.

Dewdrop, just wondering why you thought you needed to use a GSL. If you did not use one then your profit would have been the same as if you had used an Option. By using a CFD you also have the advantage of no time decay, but will have to pay interest on the position.

[Bobby]

Nobody, anywhere, ever can predict what a stock will do tomorrow with anything more than a random chance of being right or wrong. A coin toss, a dart throw and a monkey are just as profitable as the highest paid analysts, if not more so.

The sooner you accept this as true the sooner you are able to come to terms with the consequences of this for trading and the sooner you will become consistently profitable.

Exits make the money, not entries. You will not find (much of) an edge exploring entry strategies. You are FAR FAR better off choosing an exit method that suits your trading style and instrument and applying that consistently.
I will back you up on this Micheal, as you said No-one can
call it right more then 50/50 .

Bob.

[Magdoran]

.

Dewdrop, just wondering why you thought you needed to use a GSL. If you did not use one then your profit would have been the same as if you had used an Option. By using a CFD you also have the advantage of no time decay, but will have to pay interest on the position.Hello mikeg,


Have a look at my comment in “The idiots way to options riches” post 12 for more detail comparing CFDs to options, and why using a GSL when using CFDs is worth considering.


Regards


Magdoran

[bingk6]

CFD providers are bookies. If enough people bet on a given horse, then a bookie will expose themselves to the risk of a lot of people being right - to a risk of losing a significant amount of money.

How does a bookie handle this? They change the rules (i.e. odds).

Apply the above to a CFD provider;



Hey Michael,

I tend to agree with you with regards to CFD providers being bookies. Lets understand one thing, with CFD's its us (retail investors) vs the CFD Provider. For us to win, the CFD provider has to lose and vice versa.

In the case of market maker CFD providers, this is especially important, as they do not employ the DMA model and only needs to provide a synthetic market which may or may not bear a great deal of resemblance to the physical market (within reason off course).

Lets think about this statement, we are playing poker with a CFD provider who knows our hand. They are aware of all the net aggregate long and short positions, plus where the stop loss settings for everybody is, for every stock/index etc etc. So if I were a CFD provider with access to all this information, I can simply manufacture a synthetic market (without straying too far from the physical market, so as not to arouse market suspicion) that can maximise my gains, which is not too difficult, as I know the hands of all my opponents. It would take an absolute moronic CFD provider to to lose with this overwhelming advantage.

That is not to say that you will always lose against a market maker CFD provider as, I believe, they tally up the aggregates and then push the bids/asks around accordingly, on the basis of these aggregates, not individual positions. Therefore if your position is not one that the CFD provider is defending, you can potentially end up winning.

In any case, I believe there isn't any future whatsoever in playing poker with somebody that knows what your hand is. You'll need more than your share of good luck to win in those circumstances.

[MichaelD]

We are playing poker with a CFD provider who knows our hand. They are aware of all the net aggregate long and short positions, plus where the stop loss settings for everybody is, for every stock/index etc etc.YES! I totally agree with this. It's a huge advantage to the CFD provider.

Something else that I'm keen to point out is that even CFD providers who describe themselves as DMA are not necessarily so. The CFD provider I use matches the underlying market spread, but it's purely synthetic unless you're actually using their level 2 platform to place the trades. If you use their normal web platform, there is no corresponding trade in the underlying market, even though there is clearly the desire to make you believe there is.

[nizar]

Hey Michael,

I tend to agree with you with regards to CFD providers being bookies. Lets understand one thing, with CFD's its us (retail investors) vs the CFD Provider. For us to win, the CFD provider has to lose and vice versa.

In the case of market maker CFD providers, this is especially important, as they do not employ the DMA model and only needs to provide a synthetic market which may or may not bear a great deal of resemblance to the physical market (within reason off course).

Lets think about this statement, we are playing poker with a CFD provider who knows our hand. They are aware of all the net aggregate long and short positions, plus where the stop loss settings for everybody is, for every stock/index etc etc. So if I were a CFD provider with access to all this information, I can simply manufacture a synthetic market (without straying too far from the physical market, so as not to arouse market suspicion) that can maximise my gains, which is not too difficult, as I know the hands of all my opponents. It would take an absolute moronic CFD provider to to lose with this overwhelming advantage.

That is not to say that you will always lose against a market maker CFD provider as, I believe, they tally up the aggregates and then push the bids/asks around accordingly, on the basis of these aggregates, not individual positions. Therefore if your position is not one that the CFD provider is defending, you can potentially end up winning.

In any case, I believe there isn't any future whatsoever in playing poker with somebody that knows what your hand is. You'll need more than your share of good luck to win in those circumstances.

Top post champ... i luvvit !.... :D

[porkpie324]

There seems to be a lot of negativity regarding CFDs and the providors, which I just cant understand perhaps I'm missing something. I do no that i have saved a lot of money on brokerage and I have now taken more from my account than I initially put in and my account at present has a balance much more than I started with. The providor I deal with is there to make money I agree, but as things are going I'm happy.
As for providors making a false market I don't buy that argument, I run 2 computors and the quotes from my CFD providor are identical to my share broker and they change at about identical times.porkpie

[bingk6]

The providor I deal with is there to make money I agree, but as things are going I'm happy.


Good to hear you're making money, however, you realise that it is impossible for both you and your CFD provider to both be happy.....



As for providors making a false market I don't buy that argument, I run 2 computors and the quotes from my CFD providor are identical to my share broker and they change at about identical times.porkpie

For a true DMA CFD Provider, what you say is correct.

[porkpie324]

I spoke with my providor on the subject of us versus them theory, their reply was roughly quoted 'they want their clients to be long term & successful' ie make money on their trading. They (the providors) make on the brokerage plus the overnight interest if positions are held over, as said previously i'm no CFD expert but a saving of 66% brokerage, on screen instant trading suits me,porkpie
PS I use a Market Maker providor

[scsl]

Is CMC Markets being investigated by ASIC for unfair practices??

I was at the Investment Expo today and was told by an exhibitor that CMC is being looked into and in the mean time, they cannot sign up or accept any new clients. I haven't heard anything until today but am surprised, because I use their MarketMaker platform. Has anyone heard about this?

[swingstar]

Is CMC Markets being investigated by ASIC for unfair practices??

I was at the Investment Expo today and was told by an exhibitor that CMC is being looked into and in the mean time, they cannot sign up or accept any new clients. I haven't heard anything until today but am surprised, because I use their MarketMaker platform. Has anyone heard about this?

About two months ago no one was able to trade for about a day. I think you could close positions, but not enter any, as they were under investigation. I don't have my account with them anymore though.

Anyway, I didn't think it was still going... might want to contact them or ASIC and find out what it's about.

[porkpie324]

I use CMC markets, last time I traded was friday all ok then on buy & sell sides. porkpie

[scsl]

I use CMC markets, last time I traded was friday all ok then on buy & sell sides. porkpie
Yes, but I was wondering if anyone had been knocked back on their application for an account? I should give CMC a call to clarify this when I have time...

[porkpie324]

Yes it would be interesting, I am an Auckland office client so it could be just Aussie offices thats affected. I did'nt trade yesterday at al.
I have just called CMC Auckland office, they told that there was an issue some months ago but nothing of late,infact their trading platform is still working and that works directly through the austalian stock exchange, so if CMC was suspended the trading platform also would not be operating.porkpie

[alankew]

Just read thelast few pages and I currently use IG and have found no problems with them.I have withdrawn money when i wanted it and have been able to trade when i wanted.Who is everyone else using and why-I seem to recall some worries over IG with regards to withdrawing money but as i say i havent found this to be the case

[Broadside]

Top post champ... i luvvit !.... :D

I use CMC from time to time and before I trade I check SEATS volume...it is nearly always the same. I haven't found they have manipulated quotes against me and have been very happy thus far. Occasionally an order isn't executed, they check the price action and have always honoured the trade. So no complaints from me (and I have made reasonable profit too).

Just another tool to help with your trading if used in moderation. Also very flexible. It was great in May to short the index and stay long my shares, acted as a hedge in a falling market.

[barney]

I use CMC from time to time and before I trade I check SEATS volume...it is nearly always the same. I haven't found they have manipulated quotes against me and have been very happy thus far. Occasionally an order isn't executed, they check the price action and have always honoured the trade. So no complaints from me (and I have made reasonable profit too).

Just another tool to help with your trading if used in moderation. Also very flexible. It was great in May to short the index and stay long my shares, acted as a hedge in a falling market.

That sounds like a clever way to use CFD's Broadside. I use CFD's cause I don't have the available up front capital atm. "Green CFD" .......... Platform is a little quirky, but good people to deal with. Cheers Barney.

[porkpie324]

There's a CFD seminar in Brisbane running Sun&Mon, organised by CMC Markets. I'm attending anyone else. porkpie

[Fab]

I have never used CFD but used Warrants. Can anyone let me know the main drawback and advantages of CFD against Warrants

[metapolis]

Warrants have time decay, which is a negative unless you are in the money. Unless the warrant has a large, liquid market, you are in the
hands of the market maker as to the price you get/pay.
The good thing about warrants is that you know how much you are
exposed to.

CFDs are great for short term positions. No decay and if you play
the large caps, you are mirroring the physical stock in every respect.
However, you will have to enter/exit a trade on the market maker bid,
which most traders resent, but you can live with it.

For short term market speculation, simply you can not beat CFDs. However,
one has to be aware of the leverage factor. If your stock goes down a lot,
then you will lose a lot. Best way is to use caution using cfds close to agms or close to profit announcements dates. You can gauge when these dates are on by watching previous dates in the asx announcements lists. Of course, one can not foresee a profit downgrade or a takeover announcement. Although, chart activity should alert you to an extent.

As to paying interest and all this stuff, it is part and parcel of doing business. If you win, no problem. If you lose, then you whinge. We are all the same in
this respect.

From my own experience, i lost some good money on warrants in the past (part of my education I guess) but not with cfds. I never hold more than one
position overnight and this only if it is a winning one. Also, i never alert the cfd provider of my stop loss.

And I still use warrants but I try to use long dated installment warrants. This deserves a whole discussion. I have not the time for this now.

[scsl]

Also, i never alert the cfd provider of my stop loss.
metapolis, what do you mean by this?

[metapolis]

metapolis, what do you mean by this?

If they know our stop-loss levels, miraculously they get hit! Remember, the cmcs and igs of the world work against us. Same with barrier warrants and very liquid stocks. Once the barrier price gets hit, somehow price either starts going up or down, depending.

[pods]

Great Idea to start this thread SIS, I'm currently looking at finding a CFD broker to register with so it's just in time for the next div season. Keep it going!

Comsec are just about to introduce them so that we can do it all over the net. Its an interesting topic. I'm a fairly new trader in terms of looking at something besides stocks - I've only ever done stocks - But i'm looking to either margin loan or something similar, perhaps CFD, so that i can buy into stocks not in the "penny market".

[robots]

hello,

do CFD's have an end date?

are they like futures and options based on a month or time frame?

if so, why is it?

thankyou
robots

[scsl]

hello,

do CFD's have an end date?

are they like futures and options based on a month or time frame?

if so, why is it?

thankyou
robots
CFDs have no end date, so you can hold a long or short position for as long as you like. This is because it is like holding a traditional share, except for the fact that you only have to put up a fraction of the total position. Also, there is interest payable/receivable, depending on whether you go long/short.

[robots]

hello,

would trading CFD's would be comparable to getting a margin loan?

just looking at options to get margin loan or use CFD's for trading

thankyou
robots

[Magdoran]

For short term market speculation, simply you can not beat CFDs. However,one has to be aware of the leverage factor. If your stock goes down a lot, then you will lose a lot. Best way is to use caution using cfds close to agms or close to profit announcements dates. You can gauge when these dates are on by watching previous dates in the asx announcements lists. Of course, one can not foresee a profit downgrade or a takeover announcement. Although, chart activity should alert you to an extent. ...

From my own experience, i lost some good money on warrants in the past (part of my education I guess) but not with cfds. I never hold more than one
position overnight and this only if it is a winning one. Also, i never alert the cfd provider of my stop loss.

And I still use warrants but I try to use long dated installment warrants. This deserves a whole discussion. I have not the time for this now.
In my view a trader should be fully versed in a range of instruments, and should select the best instrument for the situation, and not be biased to one instrument.

Time frame is important. For intraday trading, there are disadvantages using options in that the market makers often wait 20 to 30 minutes at opening to make a market. This can be critical for day traders. However if position trading, options can be highly effective, but require the requisite knowledge to position correctly.

Here is a repost of my earlier comment on post 12 in “The idiots way to options riches” thread:
I would argue that at their best, options should outperform CFDs hands down when it comes to risk to reward, but to do this, that the options environment needs to satisfy specific conditions, and where these conditions are not met, that other instruments including CFDs may be more appropriate, but not the other way around. What I’m saying is, given a general choice, options should be considered above CFDs.

One key variable though is the capacity and actual knowledge of the individual trader/investor. If you can’t develop a sufficient understanding of options to a level to trade them, then this effectively rules this instrument out of contention. However, in my view, if you can’t figure options out, I would have serious doubt about such a person using any kind of derivative product period. I’d tend to think they’d be better off getting someone else to manage their investments such as considering using a managed fund.

This may sound harsh, but if you don’t have the intellectual capacity to understand derivatives to this level, trying to use related leveraged instruments just doesn’t add up to me – either you’ve got the ability to learn or you don’t. So, I tend to agree with Wayne regarding which instrument to use, it all depends on the situation.

The problem I have is that many CFD traders are not aware of their full exposure to risk, and often are not capable of evaluating the best instrument available to them based on their market view of a potential trade.

I’ve sat down with CFD traders and compared notes looking at the real risk to reward involved with a range of trades comparing CFDs and options and how they performed.

While sometimes good options trades are not available for a stock/index/commodity future/Forex (in which case perhaps using a CFD may be the better alternative in some cases), generally I have found that if you have sufficient options knowledge, options can significantly outperform CFDs in terms of risk to reward, if the appropriate strategy is available (sometimes appropriate options aren’t available maybe due to volatility problems, or liquidity/open interest, etc).

I went through one example with a trader (which was representative of the general findings overall) where the option slightly outperformed the CFD in terms of reward, but was about 5% the exposure - yes, that’s 20 times less exposed - than the CFD position. But each underlying and options market may differ significantly depending on a host of variables, so this comparison can vary widely.

So, I would argue that it is essential to fully understand all the instruments you are considering, and that the trader/investor develops the ability to assess the risk to reward proposition they are considering entering. That’s what using derivatives should be all about, minimising risk in context with maximising reward.

Sometimes a CFD will be the better alternative, but it is having the ability to assess which instrument is best based on the trader/investor’s style that ultimately separates the amateurs from the professionals.

Another issue is that many people using CFDs don’t understand their real exposure. If you’re using a 5% margin for collateral, that means that you are borrowing 95% of the full amount the position is worth.

So, for example, let’s say you enter long $50,000 worth of XYZ stock in CFDs while it is trading around $10, so your margin requirement is $2,500. Let’s say that overnight a major negative news event happens, and the next morning the stock opens at $5.00.

You’ve just lost around $25,000 if your position is closed (which will happen if your account is not big enough to put up the margin required), but thought you were risking $2,500 if you didn’t understand the real nature of the exposure which was $50,000.

Just think about how many people may load up several positions like this thinking all they need to do is leverage $2,500 at a time. What if the market moved significantly against them? It is very easy to be exposed to over $100,000 of risk if you don’t know what you’re doing.

Even though strong moves like this are uncommon, they do happen, and they are a real risk. I know a trader who lost over $100,000 in this way in under a month because he didn’t manage his positions, and didn’t realise his real exposure. All you need is one major loss to wipe out months of good trading… think about it.

Ok, so there are guaranteed stop losses (GSL) available for CFDs which can be used to limit risk, but this is usually set at a maximum 5% loss in the underlying, and often has a fee to establish one, and for some providers a fee to move the stop loss as the underlying moves. This is certainly preferable to being totally exposed, but can still leave the trader/investor exposed to considerable risk. 5% for each large position can add up very quickly.

Another issue about CFDs is the exposure to having your account cleaned out. This happens if a position moves against you, and there are not sufficient funds available to cover the growing margin requirement. I’ve heard of CFD traders having their account cleaned out on an intra day spike, only to see the stock rally up past where it opened and continue on in their direction. But if the account can’t meet the margin requirements at any time, the position is automatically exited at a maximum loss to the account. This is a real problem if it is not managed, and in my view a major disadvantage compared to options.

With options, there are a myriad of ways to control risk that are not available with CFDs. Firstly, even using a simple long call or put, the risk is limited to the initial premium (plus OCH fees and brokerage). You can’t lose more than you paid. Then there are a range of spreads available to cap risk, each with application depending on the market conditions.

Secondly, there are no interest payments required on a long position (or a short one for that matter – although you can receive interest from CFDs for short positions) like there is with CFDs. Certainly, there is time decay, but this can be managed, and ameliorated, or even utilised using various options approaches (sold options suffering time decay are helpful to the seller).

Thirdly, if you buy a put for a bearish position, you don’t owe the dividend at ex div like you would if you were short the underlying with CFDs (Of course if you were short a call that is assigned before ex div, you would owe the dividend).

In addition, options are regulated instruments with significant underwriting, where CFDs are essentially an OTC (over the counter) instrument, and there is a risk that the CFD provider could become insolvent, and part or all of the trader/investors’ funds may be lost in this event.

So, some key issues are based on your view of the market, how long you intend to be in the position, and what the best risk to reward strategy is available balanced against the probability of success.

Add another dimension of a range of other instruments available such as futures, warrants, forwards, swaps, bonds and debt notes, and other instruments such as convertible notes, and you have a smorgasbord of choice. The challenge though is developing the capacity to evaluate all these instruments, and then effectively evaluating the best risk to reward approach with the best probability for success.

While I understand when I hear the response that CFDS are ostensibly simpler than options, I would argue that in the broadest perspective that this is a misconception. CFDs are actually more complex than they seem. Sure they are perhaps less complex than options, but they’re quite dangerous in the wrong hands, and certainly less flexible, and arguably can be much more exposed to risk. Sure, it’s harder to work out an options strategy at first, but if you don’t do the due diligence, you’re really leaving yourself open to potential ruin.

In my view using liquid options in tradable markets should outperform CFDs significantly because the risk is capped, and can be as good as 20 times less the exposure. This can make a huge difference to the bottom line, but requires a full understanding of the instrument.


I hope that expands the field of discussion, and helps to clarify some important technical points.


Regards


Magdoran

[MichaelD]

So, for example, let’s say you enter long $50,000 worth of XYZ stock in CFDs while it is trading around $10, so your margin requirement is $2,500. Let’s say that overnight a major negative news event happens, and the next morning the stock opens at $5.00.

You’ve just lost around $25,000 if your position is closed (which will happen if your account is not big enough to put up the margin required), but thought you were risking $2,500 if you didn’t understand the real nature of the exposure which was $50,000.In my opinion, the level of risk of this transaction is in the eye of the beholder and therein lies the danger of CFDs. The (very) unwise would see this as them risking $2,500, where the $2,500 is a substantial portion of their trading capital.

Personally, if I were to take such a large position I'd view my risk as the entire exposure of the position - I'd have 1R deposited with the CFD provider which would more than cover the initial margin requirement and I'd have a whacking wad of cash sitting in a cash management account (of the order of 7 times the $50,000 or so - my max individual position size is 15% of total capital) to keep the risk of the position under control as a percentage of overall trading capital.

The temptation for the weak is to look at the unused cash and want to spend it all on bigger position sizes.

[Magdoran]

In my opinion, the level of risk of this transaction is in the eye of the beholder and therein lies the danger of CFDs. The (very) unwise would see this as them risking $2,500, where the $2,500 is a substantial portion of their trading capital.

Personally, if I were to take such a large position I'd view my risk as the entire exposure of the position - I'd have 1R deposited with the CFD provider which would more than cover the initial margin requirement and I'd have a whacking wad of cash sitting in a cash management account (of the order of 7 times the $50,000 or so - my max individual position size is 15% of total capital) to keep the risk of the position under control as a percentage of overall trading capital.

The temptation for the weak is to look at the unused cash and want to spend it all on bigger position sizes.Fully agree with you Michael,


An excellent post. Good points from a practical perspective.


Regards


Magdoran

[Kauri]

In my opinion, the level of risk of this transaction is in the eye of the beholder and therein lies the danger of CFDs. The (very) unwise would see this as them risking $2,500, where the $2,500 is a substantial portion of their trading capital.

Personally, if I were to take such a large position I'd view my risk as the entire exposure of the position - I'd have 1R deposited with the CFD provider which would more than cover the initial margin requirement and I'd have a whacking wad of cash sitting in a cash management account (of the order of 7 times the $50,000 or so - my max individual position size is 15% of total capital) to keep the risk of the position under control as a percentage of overall trading capital.

The temptation for the weak is to look at the unused cash and want to spend it all on bigger position sizes.

And the alternative is to use a GSL. I personally only ever trade CFD's that have a GSL facility available. With my provider practically all the GSL'able CFD's with a 5% margin have a GSL premium of .3%. That way I have my risk for the $50000 example you are using capped at 5% ($2500) for a once off premium cost of $150. In my opinion any leverage employed with open ended risk is courting disaster, be it shares, options, CFD's, futures, FX, property, et al. My opinion is that all CFD's should have GSL "insurance" as a compulsory feature, much as insurance is compulsory on any asset that a bank/financial institution lends money on. Mind you it may cut down on the providers profit..

[RichKid]

And the alternative is to use a GSL. I personally only ever trade CFD's that have a GSL facility available. With my provider practically all the GSL'able CFD's with a 5% margin have a GSL premium of .3%. That way I have my risk for the $50000 example you are using capped at 5% ($2500) for a once off premium cost of $150. In my opinion any leverage employed with open ended risk is courting disaster, be it shares, options, CFD's, futures, FX, property, et al. My opinion is that all CFD's should have GSL "insurance" as a compulsory feature, much as insurance is compulsory on any asset that a bank/financial institution lends money on. Mind you it may cut down on the providers profit..

Hi Kauri,

My 2c worth:


Completely agree about the risks of uncapped loss, regardless of the instrument or market.

The problem with GSL's is the added costs, can be significant as it's a and they can add as you extend the gsl expiry or change it's distance.

Imo, it would be in the interests of CFD providers to have gsl's across the board as that'll keep clients trading for longer and more often rather than having them wiped out quickly. There would be problems with offering gsl's on all stocks as some would not be hedgeable (ie can't find stock to borrow or no derivatives available).

This is an excellent topic to be discussing guys, let's see if we can flesh out the issues completely.

[Kauri]

Hi Gp..
I trade with IG and there is only the initial once off payment for the GSL based on the total value at purchase, and thereafter you can adjust the GSL as often as you require (so long as it is never less than 5% from the price at the changing time), for no extra cost. They also have a GSL available on Fx, futures etc but rather than a premium charge they build it into the spread.

[MichaelD]

And the alternative is to use a GSL.I tend to disagree.

In my opinion, a GSLO is merely a smoke and mirrors trick by CFD providers to get you to put your stop in the market.

I know by backtesting that a system with an intraday stop is less profitable and has more drawdown than a system with an EOD stop which is not placed in the market.

What does a GSLO achieve?
1. A steady extra income stream for the CFD provider (= a steady extra drain on your capital)
2. It alerts the CFD providers to where you place your stop.
3. It puts your stop in the market where it can be hunted down.
4. It will result in the CFD provider giving you more margin to play with.
5. In return, you get protection from black swan events.

I fail to be convinced so far that a GSLO will in fact improve system expectancy - that its benefit outweighs its disadvantages.

If anyone has any robust testing to prove this point one way or the other, I'm certainly interested in hearing about it. As with many things on the market, all is not always as it seems.

[Kauri]

I know by backtesting that a system with an intraday stop is less profitable and has more drawdown than a system with an EOD stop which is not placed in the market.


How does a stop placed 5% from the current price qualify as an intraday stop as opposed to an EOD stop?
How do you backtest a system which has an EOD stop that is not placed in the market??


1. A steady extra income stream for the CFD provider (= a steady extra drain on your capital)
Yes , I feel the same way about my house, contents, car, insurance.


2. It alerts the CFD providers to where you place your stop.)
Yes.


3. It puts your stop in the market where it can be hunted down.
Yes, as I use DMA (true DMA, I watch the order processed on an independant market depth screen) CFD's which are obviously some of the largest capped co's on the ASX, if anyone wants to hunt down my humble positions stop by physically moving the underlying by 5% then I question their sanity and business acumen.



4. It will result in the CFD provider giving you more margin to play with.
My bank is constantly offering me a higher limit on my credit card, also access to the equity in my home, I don't accept their offers either.



5. In return, you get protection from black swan events.
Thats why I use it, in fact that is why all my major assetts are insured.


I fail to be convinced so far that a GSLO will in fact improve system expectancy - that its benefit outweighs its disadvantages.
I don't recollect expectancy being mentioned, however, I don't magine it does improve it, what I utilise it for is insurance against that 1 in a 1000 event that will never happen to me.
That being said, I have not yet exited a position on a GSL, I actually monitor my trades and set and execute manual exits at more relative points than an arbitrary 5% area. The GSL is purely insurance.

[MichaelD]

How does a stop placed 5% from the current price qualify as an intraday stop as opposed to an EOD stop?
How do you backtest a system which has an EOD stop that is not placed in the market??
I don't recollect expectancy being mentioned, however, I don't magine it does improve it, what I utilise it for is insurance against that 1 in a 1000 event that will never happen to me.

A GSLO will trigger if the price action touches the GSLO price at any time during the course of trading. An EOD stop is only triggered when you look at the chart at the end of the day and notice that the price has dropped to or below the stop loss point on the trade (i.e. only on the CLOSE price). You then make arrangements to sell the next day.

Backtesting is simple - you just code an exit as follows;
For an intraday stop - if today's LOW <= STOP, exit TODAY at STOP price.
For an EOD stop - if today's CLOSE <= STOP, exit TOMORROW at OPEN price.

Your insurance analogy is an apt one - you're insuring yourself against the possibility of a position wipe-out or slippage which you cannot tolerate. My contention is that it may well be more profitable in the long run not to pay for the insurance, but to accept the fact of the occasional black swan event in trading.

Do you (or I) know the odds of a black swan event? Nope. I'll bet, though, that the CFD providers do. Since they are nothing more than professional bookmakers on financial markets, I'll also bet you that they are the ones that net benefit from GSLOs, not us - just as insurance companies profit from selling insurance. Why else would they offer them?

[wayneL]

Do you (or I) know the odds of a black swan event? Nope. I'll bet, though, that the CFD providers do. Since they are nothing more than professional bookmakers on financial markets, I'll also bet you that they are the ones that net benefit from GSLOs, not us - just as insurance companies profit from selling insurance. Why else would they offer them?

Good point MD,

Just like "insurance" at the blackjack table... a net winner for the casino.

[Kauri]

I neglected to declare that I have a little bit of bias when it comes to GSL's..
Pre GSL, EOD stop, earnings forecast update..... what seemed to be a black swan turned into my own bloody Jumbo!! :) Cost me over 30% of my bank... I know...it will probably never happen again... :D

[MichaelD]

Cost me over 30% of my bank... I know...it will probably never happen again... :DNot wanting to be negative, but if this sort of event could expose you to that degree of loss then your position sizing is WAY too high to be safe. No wonder you feel the need for insurance.

Personally, I will never place myself in a position where even a complete wipe-out of a position (i.e. liquidation with no return to shareholders) will lose me any more than 15% of my overall capital.

[TraderPro]

Not wanting to be negative, but if this sort of event could expose you to that degree of loss then your position sizing is WAY too high to be safe. No wonder you feel the need for insurance.

Personally, I will never place myself in a position where even a complete wipe-out of a position (i.e. liquidation with no return to shareholders) will lose me any more than 15% of my overall capital.


Have you guys ever thought, if the market were to crash like it did in the eighties, and since you are trading a leveraged instrument... any large movement against your portfolio would leave you financially stuffed?

Is this kind of risk something that all traders just accept?

I mean no ordinary stop loss will defend against this since the market would gap down, perhaps a gslo could protect you in the case of any crash happening?

[Kauri]

Not wanting to be negative, but if this sort of event could expose you to that degree of loss then your position sizing is WAY too high to be safe. No wonder you feel the need for insurance.

Personally, I will never place myself in a position where even a complete wipe-out of a position (i.e. liquidation with no return to shareholders) will lose me any more than 15% of my overall capital.

That is why I stopped trading, studied what I was doing, and started using GSL's.
Say I had $100000 for a bank and wanted to go unprotected via CFD's in BHP, then by risking no more than 15% (or $15000) on a complete wipeout scenario then the amount I purchase would be 15000/26.5=566 shares.
a) Via CFD= 5% margin + (5% margin*10% for divi allowance)=$825 with $14175 put away in case of disaster = $15000. Total risk = $15000....
b) Via normal purchase of shares = $15000. Total risk = $15000....
c) Via CFD DMA GSL = 5% margin + (5% margin*10% for divi allowance) + 0.3% GSL premium = 750 + 75 + 45 =$870. Total risk = $870.
Should also mention that under my trading guidelines (another contentious issue on another thread :D ) that no one position (total share value) will represent more than 15% of my bank and my total use of funds available (margin etc) will not represent more than 30% of my available funds.
Now why would I use a or b over c, in fact why would I bother with leveraged a as opposed to b, apart from a small interest gain? In a and b I could have approx 7 open BHP type positions with all my $100000 committed and ultimately all at risk whereas with c I can comfortably have 15 BHP type positions open with less than 15% of my funds committed and at risk. If I am going to use leverage I want to know my total liability under a worst case scenario and I want to be in control of my risk, not at the mercy of external factors ( and unexpected earnings downgrades :eek: ).

[MichaelD]

whereas with c I can comfortably have 15 BHP type positions open with less than 15% of my funds committed and at risk.Now THIS is an interesting post - 'tis the first time I've ever read what appears to be a compelling argument FOR the use of GSLOs as a risk mitigation tool.

Time to do some number crunching of my own methinks.

[MichaelD]

Have you guys ever thought, if the market were to crash like it did in the eighties, and since you are trading a leveraged instrument... any large movement against your portfolio would leave you financially stuffed?Crashes don't happen out of the blue - there are plenty of technical warning signs before the big fall. Studying how my plan would have traded through the 1987 crash shows that the system would have progressively shut down in the days before the crash - stops got hit, but there were less and less buy signals so the portfolio progressively moved to cash.

[Kauri]

Have you guys ever thought, if the market were to crash like it did in the eighties, and since you are trading a leveraged instrument... any large movement against your portfolio would leave you financially stuffed?

Is this kind of risk something that all traders just accept?

I mean no ordinary stop loss will defend against this since the market would gap down, perhaps a gslo could protect you in the case of any crash happening?

Apart from market crashes, what would happen if (God forbid) you had a stroke, car accident..... and were comatose, would anyone manage your account for you?? (Sorry about the gloom, bad night.. )

[Bobby]

That is why I stopped trading, studied what I was doing, and started using GSL's.
Say I had $100000 for a bank and wanted to go unprotected via CFD's in BHP, then by risking no more than 15% (or $15000) on a complete wipeout scenario then the amount I purchase would be 15000/26.5=566 shares.
a) Via CFD= 5% margin + (5% margin*10% for divi allowance)=$825 with $14175 put away in case of disaster = $15000. Total risk = $15000....
b) Via normal purchase of shares = $15000. Total risk = $15000....
c) Via CFD DMA GSL = 5% margin + (5% margin*10% for divi allowance) + 0.3% GSL premium = 750 + 75 + 45 =$870. Total risk = $870.
Should also mention that under my trading guidelines (another contentious issue on another thread :D ) that no one position (total share value) will represent more than 15% of my bank and my total use of funds available (margin etc) will not represent more than 30% of my available funds.
Now why would I use a or b over c, in fact why would I bother with leveraged a as opposed to b, apart from a small interest gain? In a and b I could have approx 7 open BHP type positions with all my $100000 committed and ultimately all at risk whereas with c I can comfortably have 15 BHP type positions open with less than 15% of my funds committed and at risk. If I am going to use leverage I want to know my total liability under a worst case scenario and I want to be in control of my risk, not at the mercy of external factors ( and unexpected earnings downgrades :eek: ).

Kauri your above post was an eye opener, most interesting !
Thank you.

Bob.

[>Apocalypto<]

Apart from market crashes, what would happen if (God forbid) you had a stroke, car accident..... and were comatose, would anyone manage your account for you?? (Sorry about the gloom, bad night.. )

That is such a good point.

When I had surgery end of 05, three days before I gave my girlfriend a run through of how to exit my positions if anything nuts happened while I was in the hospital.

Nothing happened.

Also my mum knows all my account passwords in case anything happens to me.

[mft06]

Solid info Kauri, will add that to my education bank!!!
Am interested in trading auzzie index’s with CFD’s
Am looking at the All Ords at the mo, waiting to see how the US markets fair tonight.
My thinking is if they fail there may be a short trade on the XAO at open on the morning??
I’m using Incredible Charts, Twiggs money flow shows distribution late this arvo, if this is supported from the US markets I reckon it might be on.

would look at entry, short @ 58.380 with a tight GSL of 58.450 if I get on.
trailing bout 4 ticks once i'm in the red.

$1500 on this trade

Would be interested in the thoughts of you guys.

Cheers

Luke

[Uncle Festivus]

I'm already into short index cfd's, the IG Markets Mini 200. Looks like an income generator now with short interest plus capital gains. I wonder what happens to the cfd providers in the event of a big market correction. I wouldn't mind betting they will put restrictions on short selling or bump up the margins.

[Kauri]

I'm already into short index cfd's, the IG Markets Mini 200. Looks like an income generator now with short interest plus capital gains. I wonder what happens to the cfd providers in the event of a big market correction. I wouldn't mind betting they will put restrictions on short selling or bump up the margins.

The spread om MM cfd's will widen, with the deal flag possibly being replaced with call (phone) .. on DMA cfd's nothing much will change except they will probably not be able to access stock to short,

[wahoo]

Hey - heres last nights 2min tick chart of 'mini wall st cash' from IG markets - between the two red lines was the trading day

Now maybeez I'm jus paranoid - but 15 mins after close there's an inexplicable 200 point spike 15mins after close - does anyone have a chart from another source that verifies this spike - cos it sure looks like a 'shake out the shorts' for absolutely no reason (unless ur the provider....)

[professor_frink]

Hey - heres last nights 2min tick chart of 'mini wall st cash' from IG markets - between the two red lines was the trading day

Now maybeez I'm jus paranoid - but 15 mins after close there's an inexplicable 200 point spike 15mins after close - does anyone have a chart from another source that verifies this spike - cos it sure looks like a 'shake out the shorts' for absolutely no reason (unless ur the provider....)
no spike on the futures.

[wahoo]

Hey frinky

So basically IG charts made a 400point movement in 4mins of trading with no external forces coming to bear on their index

nice trade if u can catch it

sure looks suss.........

[professor_frink]

Hey frinky

So basically IG charts made a 400point movement in 4mins of trading with no external forces coming to bear on their index

nice trade if u can catch it

sure looks suss.........
yep, gotta love em, don't you! Surprised they didn't spike it up above the high of the day to get rid of more of the shorts(it's a fairly common area for stops to be placed).

Having some problems with my datafeed's backfill today, but you can get the futures chart from futuresource-

http://www.futuresource.com/charts/charts.jsp?s=EYM1%21&o=&a=V%3A2&z=800x550&d=HIGH&b=bar&st=#

[wahoo]

cheers frinkster - thats the chart I tried to access first of all!

So who do you trade with frinky - after seeing this its gonna blow out my risk factor to push my stoploss out far enuff to protect me from my provider :sly:

[professor_frink]

cheers frinkster - thats the chart I tried to access first of all!

So who do you trade with frinky - after seeing this its gonna blow out my risk factor to push my stoploss out far enuff to protect me from my provider :sly:
I don't trade CFD's wahoo, that chart you posted is one reason why. I trade futures through Interactive Brokers (http://www.interactivebrokers.com/en/main.php).

If you want to trade the indexes, this IMO is the way to go. That way it's just you against the market, not you against the market, and your broker!

[wahoo]

hmmmmm

futures hey

uhoh........... think I'm in for another learning curve - pretty mus the same as trading the index tho - but there mus be a few curly diferences eh?

nice site looks like a pretty solid platform - you had good experiences wid them - any dramas to an fro with money in an out of account - you bank it all overseas so there's no tax.............. :D

Frinklet, I think you and IG may have converted me

[theasxgorilla]

I don't know if this has been stated already, but with regards to CFD providers...CMC suck, go with IG Markets. The universe of ASX tradeable shares is larger, the universe of shortable shares is larger AND most of all, IG Markets allow you to use 'stop' orders to open new positions. CMC markets do not allow you to place an order that will open a new position automatically once a price level is reached. Defeats one of the key purposes of trading with CFDs IMO.

[professor_frink]

hmmmmm

futures hey

uhoh........... think I'm in for another learning curve - pretty mus the same as trading the index tho - but there mus be a few curly diferences eh?

nice site looks like a pretty solid platform - you had good experiences wid them - any dramas to an fro with money in an out of account - you bank it all overseas so there's no tax.............. :D

Frinklet, I think you and IG may have converted me
The mechanics of trading the futures contract compared to trading the cfd equivalent won't be much of a change- Apart from the spike on your chart, it looks to be quite close to the futures contract, provided they don't do that in the middle of the session, you could probably still daytrade it via cfd's fairly well( depending on the spread of course!).

You'll need to find out what the margins are for the market you're trading, and when to rollover contracts, but it pretty well everything else should be the same.

Except for maybe the tax scenario- I'm pretty sure the yanks will want some tax out of you for trading their markets, which probably won't apply if you trade the cfd index via a local provider.

IB's platform takes a little bit of getting used to, and you need to have a fairly decent computer to run it smoothly, as it's a bit of a resource hog! Apart from that it's rock solid in the important areas- order execution is great. It was a little bit of a hassle to get my money deposited(had to wire the money in which took a couple of days, but it got there in the end!). Withdrawing money hasn't been a problem as yet, usually next business day, day after that at the latest. Despite them being an American company, you can keep money in Aussie dollars, it's done through Citibank in Sydney.

[wahoo]

Hey Frinkwardo thanks fo that - I'll have a good look it

[professor_frink]

Hey Frinkwardo thanks fo that - I'll have a good look it
No worries mate, good luck with whatever you decide to do. In the meantime, keep those stops nice and wide :)

[nizar]

To those trading CFDs.
Do you do it from a real market or from a market maker like CMC?
I heard with market makers its better to place stops outside the market??

[coyotte]

I'm already into short index cfd's, the IG Markets Mini 200. Looks like an income generator now with short interest plus capital gains. I wonder what happens to the cfd providers in the event of a big market correction. I wouldn't mind betting they will put restrictions on short selling or bump up the margins.

If they (IG) have too large a commitment they will close that stock for any more orders. --- phoned them the other day

Cheers

[It's Snake Pliskin]

To those trading CFDs.
Do you do it from a real market or from a market maker like CMC?
I heard with market makers its better to place stops outside the market??
DM access. I like to see my actual order placed on the market as a real order. GSL's are expensive though if trading tight stops.

[Uncle Festivus]

To those trading CFDs.
Do you do it from a real market or from a market maker like CMC?
I heard with market makers its better to place stops outside the market??

I use 2 cfd providers - IG Markets (L1 for controlled risk) for indexes, derivatives & precious metals & Etrade (Man) for DM access cfd's and normal shares (WebIress).

I have tried CMC but gave up after too many re-quotes, and spurious order changes.

The big negative with IG is that they don't pay interest on your cash account, & the L1 is pretty basic, (although the new tick charts are good). I have yet to find the perfect cfd provider.

Spikes in prices & charts are usually errors that IG don't hold you to eg if it did take you out of the trade a phone call usually fixes it (and the chart).

-

[barney]

I use 2 cfd providers - IG Markets (L1 for controlled risk) for indexes, derivatives & precious metals & Etrade (Man) for DM access cfd's and normal shares (WebIress).

I have tried CMC but gave up after too many re-quotes, and spurious order changes.

The big negative with IG is that they don't pay interest on your cash account, & the L1 is pretty basic, (although the new tick charts are good). I have yet to find the perfect cfd provider.

Spikes in prices & charts are usually errors that IG don't hold you to eg if it did take you out of the trade a phone call usually fixes it (and the chart).

-


Howdy UF, Just out of curiousity, what are E trade/Man's fees?? I am also with IG who only charge .01% so an order of say $8,000 (total value of trade) is only charged a fee of $8 ........I also have another CFD provider who has a minimum transaction fee of $10 ......... Therefore for smaller positions IG is far superior (this is handy when building a position slowly) ......... How does Man compare?? ....... Cheers.

[theasxgorilla]

Howdy UF, Just out of curiousity, what are E trade/Man's fees?? I am also with IG who only charge .01% so an order of say $8,000 (total value of trade) is only charged a fee of $8 ........I also have another CFD provider who has a minimum transaction fee of $10 ......... Therefore for smaller positions IG is far superior (this is handy when building a position slowly) ......... How does Man compare?? ....... Cheers.

I'm interested to hear a little about Man as well.

[MichaelD]

Spikes in prices & charts are usually errors that IG don't hold you to eg if it did take you out of the trade a phone call usually fixes it (and the chart).I wonder if the phone call fixes the trade for you and not for everyone else?

[Kauri]

I wonder if the phone call fixes the trade for you and not for everyone else?

The spike was caused by a feed fault from IT and no-one short should have been stopped out, I certainly wasn't. If you were a quick phone call will rectify the situation.

[Uncle Festivus]

Howdy UF, Just out of curiousity, what are E trade/Man's fees?? I am also with IG who only charge .01% so an order of say $8,000 (total value of trade) is only charged a fee of $8 ........I also have another CFD provider who has a minimum transaction fee of $10 ......... Therefore for smaller positions IG is far superior (this is handy when building a position slowly) ......... How does Man compare?? ....... Cheers.

Hi Barney, I'm on the professional rate on Power Etrade (WebIress combined with Man) minimum fee is $10. As for the percentage rate that is negotiable, as with most cfd providers. I started out at something like 0.15% and now I'm on 0.1%, as one of their 'active traders' or some such fancy name. Basically I rang them one day and said that IG was charging 0.1 and would they match it. After some mumbling about having to trade minimum amounts blah blah they changed it to .1%. Basically if you ask straight up to give you 0.1 or lower they usually want the business so they give it to you.

Theres also a monthly data fee of approx $80 or so, but reduces to zero depending on the number of trades.

Etrade is also DMA so no gsl, only contingent orders. Basically Etrade for share cfd's (& normal shares), IG for indexes.

[barney]

Hi Barney, I'm on the professional rate on Power Etrade (WebIress combined with Man) minimum fee is $10. As for the percentage rate that is negotiable, as with most cfd providers. I started out at something like 0.15% and now I'm on 0.1%, as one of their 'active traders' or some such fancy name. Basically I rang them one day and said that IG was charging 0.1 and would they match it. After some mumbling about having to trade minimum amounts blah blah they changed it to .1%. Basically if you ask straight up to give you 0.1 or lower they usually want the business so they give it to you.

Theres also a monthly data fee of approx $80 or so, but reduces to zero depending on the number of trades.

Etrade is also DMA so no gsl, only contingent orders. Basically Etrade for share cfd's (& normal shares), IG for indexes.

Thanks for the info UF.

[hector]

I'm with FP Markets at present, min trade $10 or o.1%. DMA, no GSL. Broadest universe, low margins, but no indices. Any stock you want to go long just ring them and next day it's there (penny dreadfuls @ 99%, but still cheaper brokerage than shares). Platform webIRESS $55 /m. Largest range of shorts too.

But I'm looking at Macquarie. Fees higher, margins higher. BUT - DMA and GSL. Trading platform is being developed in-house and will soon feature charting as well as depth/course of sales/watchlist/orders etc. I am sure that active traders will be able to reduce fees.

I really don't like webIRESS. The best platform I have used is eTrade Pro, unfortunately can't trade CFD's with it. So Mac might get the nod in the near future.

Also, at Mac each trader has a separate account rather than a pooled account (which exposes you to provider risk in the case of defaulters).

[Uncle Festivus]

Yes, I've been watching Macquarie ever since they started. Just waiting for a few of their features to be improved eg watchlists, reduce fees maybe. Maybe the next move after IG?. I'm no fan of WebIress but it's fast & does the job.

[mikeg]

Hi Uncle Festivus,

In reference to your quote below, why don't you use IG L2 platform for your CFD's. You can place an GSL on the L2?


I use 2 cfd providers - IG Markets (L1 for controlled risk) for indexes, derivatives & precious metals & Etrade (Man) for DM access cfd's and normal shares (WebIress).

[Uncle Festivus]

Hi Uncle Festivus,

In reference to your quote below, why don't you use IG L2 platform for your CFD's. You can place an GSL on the L2?

Um... I thought this was not possible. I'm sure I was told by a rep that that was the attraction of their MM (L1) platform, and no gsl for L2. L1 does the job for now anyway. :D

[bvbfan]

I'm with FP Markets at present, min trade $10 or o.1%. DMA, no GSL. Broadest universe, low margins, but no indices. Any stock you want to go long just ring them and next day it's there (penny dreadfuls @ 99%, but still cheaper brokerage than shares). Platform webIRESS $55 /m. Largest range of shorts too.


So if the margin is 99% why do you bother buying it on margin and paying finance costs when you could buy the stock outright?
I'm guessing liquidity issues would also be an issue either way?

[canaussieuck]

Has anybody here looked at City Index? Pretty sure its a MM arrangement, but the list of shares and indices is quite substantial. At the moment i'm just using them to learn more and i'm not actually trading. Their requirements to join are very loose compared to MAN with Etrade, scary how easily i got an account.

Cheers,

[canaussieuck]

Just wanted to bring this forward again....does anyone use City Index? I just wanted to know what you thought of it, the platform, the service, what they were like to trade with etc.

Cheers,

[clayton4115]

im using cityindex, cant comment too much as i just started trading today ! :p:

[investorpaul]

Ive just started trading CFDs (as my blog outlines). At the moment im focusing on the Uk market due to work commitments, but follow a fairly simple strategy of identifying support and resistance and waiting for it to be broken and identify up/downtrend movements to trade.

In addition to support/resistance and trends I utilize MACD, RSI and momentum to confirm decisions and identify signals to trade out of my position.

All my trades are intra day to limit risk and so far most have been around 30mins to 1.5hours.

I thought it would be interesting to know what strategies other CFD traders take? and i am especially interested in those who hold CFDs for a number of days and how they feel about the increased risk exposure of that?

If anyone is interested i will be posting on my blog after every trading day so you will be able to be kept up to date with what is going on.

[Wysiwyg]

Ive just started trading CFDs (as my blog outlines).
If anyone is interested i will be posting on my blog after every trading day so you will be able to be kept up to date with what is going on.

Hi Paul, Do you think your discretionary approach will bring you unstuck?

For instance this following quote from your blog indicates you could have lost $200 rather quick which is more than the "2%" capital you supposedly risk/trade.Is no fixed stop loss a good practice in your opinion?


However it quickly retreated and I could tell momentum would not be with this stock for now. I hadnt seen a reason to sell and contniuned to hold, around the hour mark it started showing signs of weakness and I jumped ship. The end result was a profit of 13 pounds, a couple of minutes later it quickly dropped. If I had held I would have seen a loss of a couple of hundred dollars pretty quick. So although not successful in terms of return I was pleased with my timing and the reading of the market.

[clayton4115]

im currently trading CFDs the ASX 200, as a hedge on my actual long portfolio, however if the market hits 3800 points i will have to get out of my short position and lose $4000 but hopefully my long core position would have gone up $10,000 so net result +$6000.

should have done this 12 months ago!!!!
:rolleyes:

p.s no stop loss in place.

[Glen48]

A sell on Suncorp Monday 9/02 should bring results????

[investorpaul]

Hi Paul, Do you think your discretionary approach will bring you unstuck?

For instance this following quote from your blog indicates you could have lost $200 rather quick which is more than the "2%" capital you supposedly risk/trade.Is no fixed stop loss a good practice in your opinion?

Wysiwyg,

Definately a valid point and something I hope to discuss in my blog. Basically I monitor the trade every second until I exit. I draw a line on the chart that is my "stop loss line" once it crosses that I exit the trade. Sure it could jump quickly, but thats the risk I take.

Why dont I use a stop loss? The guaranteed stop loss in IG markets has to be placed at least 5% away (which would wipe out most of my position anyway) and it costs like 50 pounds in commission which would make it alot hard to make a profit.

I havnt investigated their trailing stop losses to much but it does involved extra commission.

[sinner]

You need to be careful investorpaul, unless you are using RT market data. The charts provided by IG lag behind the ticket price by a couple of seconds (if not more).

If the market is moving fast, and you are using IG charts, you will be entering and exiting trades late.

[investorpaul]

You need to be careful investorpaul, unless you are using RT market data. The charts provided by IG lag behind the ticket price by a couple of seconds (if not more).

If the market is moving fast, and you are using IG charts, you will be entering and exiting trades late.

Yer ive noticed there not 100% up to date, but it is ok for now. If I can trade to a bigger position I will look at other sources of data.

Does anyone else out there Specifically trade the UK market with CFDs?

[RobinHood]

hi
anyone know what the tick value on a HSI contract @ CMC markets is> considering re-opening with them.

they don't seem to specify anything of the sort. I wanna know how much I'm paying in $ terms for 10tick CMC tax/spread on my entry & exit.

thanks

[Trembling Hand]

hi
anyone know what the tick value on a HSI contract @ CMC markets is> considering re-opening with them.

they don't seem to specify anything of the sort. I wanna know how much I'm paying in $ terms for 10tick CMC tax/spread on my entry & exit.

thanks

Not much good. 15 tick spreed in $10 HKD lots

[RobinHood]

oh, too much..

was hoping more like $1-2 a tick...

[psychic]

I am considering setting up a CMC market account and going long on the ASX 200, since the market has dropped over 50%. Surely it cannot drop much further so the reward now outways the risk.

What do others think of this idea?

[Glen48]

Sounds good But your are upside down go short...B.O. if fast loosing the Messiah crown as his bailout package fails to fire...every thing down Gold up

[psychic]

I understand your bearish views so very tight stops will need to be used, although we are hitting that magical bottom once again. We have now sat idle for over 3 months bouncing off this low on several occassions, so it would be fair to say this seems to be the bottom for now at least.

[psychic]

The price of oil also seems to have bottomed out, would going long on oil be a wise move?

[rossw]

oh, too much..

was hoping more like $1-2 a tick...


that is $2/tick...
$10HKD. ex rate is about 5:1, which = $2AUD

[clayton4115]

currently shorting the index asx200, made $700 in february and currently $725 now, 6.75% in Feb and currently 10% in March,

i'm happy! :D