Negativity towards CFDs
- Thread starter tom82
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* Force you to buy at the ask and sell at the bid (which is wider than a real market)
* Not a real market
* No "real volume" and/or depth of market outside of ASX
* Silly margin rules.
* Arbitrary contract exposure. It's impossible to run some trading strategies using the CFD brokers since they choose which contracts they will allow traders to trade. For example right now the options on XJO in IGMarkets are only Daily and June options! Good luck trying to run a 6 month option without it listed. Why can't I buy front month VIX and sell back month VIX or vice versa?
* Not a real market
* No "real volume" and/or depth of market outside of ASX
* Silly margin rules.
* Arbitrary contract exposure. It's impossible to run some trading strategies using the CFD brokers since they choose which contracts they will allow traders to trade. For example right now the options on XJO in IGMarkets are only Daily and June options! Good luck trying to run a 6 month option without it listed. Why can't I buy front month VIX and sell back month VIX or vice versa?
*Probably a large part ignorance of what they are and how they work.
*The fact that they are not an income or resource producing asset when you lay the money down, but a 'bet' that could amount to a loss. e.g. Buying direct shares means you hold an actual stake in the company, if they go south and you don't have risk management practices in place, you are at least left holding a stake in a company, albeit at a value now less than what you paid. If your CFD's go against you, you have less money than you started with and you still own nothing.
*The fact that they are an instrument of no actual value to the productivity of the world. If no CFD's were written today, the only thing that would change is that...there would be no CFD's written today. There would be no more or less food, building materials or knowledge.
*They have significant downside potential to the ill informed and prepared. That would be a very large proportion of investors, right?
I understand they are just another instrument used to make money, but to me it's the same argument that people use to argue against residential property investment. It's an investment in a non-productive 'asset'. There might be profit(loss) to be made there, but you're only swapping bits of paper with other people/institutions like yourself. The market could disappear overnight and nothing of value to humans in general would be lost.
tinhat
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CFDs are about the same as placing a bet with a book maker.
Trembling Hand
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Actually that may be true but conversely I know them inside and out. I doubt anyone here has placed more CFD trades than me BUT I greatly dislike them.
They are very very very rarely the best instrument to place a given trade. Huge hidden cost. That suck in newbies with cheap margin rates and "free brokerage".
The only trade I can see them of being use is an equity short on the Aus market due to the lack of available shorting stock to retail traders. Virtually every other CFD instrument cost you way way more.
What do you say about forex then?
CFDs and forex are similar.
All markets have potential downside.
CFDs and forex are similar.
All markets have potential downside.
Trembling Hand
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Back in the old days (2004-2008
: ) when they had customers belting down their door throwing money at them left right and centre you could trade any size you wanted. The great thing about that was that you could buy huge position sizes without having to worry about effecting the underlying market.Anyone who could rapidly trade with some skill would have an advantage of getting execution mostly when you wanted.
Now they have tightened the game up to not only squeeze the skilless punter but slow down execution for anyone profitable. End result its not worth trading it if you can trade and if you cannot your accounts is soon in their bank and you're none the wiser.
skc
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That is not true when it comes to DMA CFD's for equities. CFD's origin started with spread betting in the UK and hence the connotation of betting remains. But with DMA all orders are placed into the market, you can buy at the bid (i.e. join the queue) or sell at the ask, and the underlying market volume is your volume.
OTC CFD's for futures and FXs are different. They serve exactly the same purposes (or there lack of) as the real futures and FX market, except with the sort of short fall and hidden costs that are talked about.
I am not negative towards them, and if anything, plenty of beginners trade OTC products which makes the CFD provider more profitable and less likely to bankrupt...
They are the best instrument out there for pairs trading with the shorting and leverage.
The same can be said to many other bits of financial instruments in the world. The only real instruments that result in real change in production are primary market activities - IPOs, capital raisings, debt issuance. All secondary markets (share market, bonds market) are there to support the primary market but they don't directly result in change in production.
I guess on one hand I don't disagree with you. But on the other hand, since it is my instrument of choice - I'd hate to see it go / get severely restricted for the above reasons.
I can’t see that way .
I use quite often DMA CFD / ASX CFD or just Shares to go long /short . it depend of my particular situation.
pixel
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I use CFDs frequently as a hedge = insurance against too big a drop if, for one reason or other, I want to hold on to the mother stock for a few more days.
Of course, if the provider "doesn't do" the stock I'm after, or won't cover the downside, there's little I can do about it. But then I don't fret or blame the CFDs - what's the point?
I also like CFDs to the long side for a quick swing trade, using the leverage factor to get a few extra profits during a day when not much else is happening. So what if the Market Maker charges a few extra points above the spread: it still leaves enough upside for me - provided I get the direction right. Take an example: On March 16th, CVN moved from 11.5c to 13c; at the best respective time, m/depth had 11c bid, 13c offered, meaning realistically a buying opportunity at 11.5c, a sell at 12.5c.
So, I can either trade 100,000 on the physical market, which ties up $11,500 + $20 brokerage, profit $1,000 minus twice the brokerage, say $960.
Or I trade 100,000 CFDs at 25% margin, which ties up $2,885 and nets $920 profit.
Is it a bet? Is it a trade? Which is which? What's the difference? To me, the difference is $40 less profit for a quarter the capital outlay. Or, if we must split a rabbit: $40 additional loss for a quarter the capital.
Of course, if the provider "doesn't do" the stock I'm after, or won't cover the downside, there's little I can do about it. But then I don't fret or blame the CFDs - what's the point?
I also like CFDs to the long side for a quick swing trade, using the leverage factor to get a few extra profits during a day when not much else is happening. So what if the Market Maker charges a few extra points above the spread: it still leaves enough upside for me - provided I get the direction right. Take an example: On March 16th, CVN moved from 11.5c to 13c; at the best respective time, m/depth had 11c bid, 13c offered, meaning realistically a buying opportunity at 11.5c, a sell at 12.5c.
So, I can either trade 100,000 on the physical market, which ties up $11,500 + $20 brokerage, profit $1,000 minus twice the brokerage, say $960.
Or I trade 100,000 CFDs at 25% margin, which ties up $2,885 and nets $920 profit.
Is it a bet? Is it a trade? Which is which? What's the difference? To me, the difference is $40 less profit for a quarter the capital outlay. Or, if we must split a rabbit: $40 additional loss for a quarter the capital.
Trembling Hand
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I use CFDs frequently as a hedge = insurance against too big a drop if, for one reason or other, I want to hold on to the mother stock for a few more days.
Of course, if the provider "doesn't do" the stock I'm after, or won't cover the downside, there's little I can do about it. But then I don't fret or blame the CFDs - what's the point?
Are you kidding?
Are you kidding?
Are you kidding?
You really are kidding??
pixel
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Thanks for your well-presented and reasoned disapproval. Let me answer in kind:
no.
no.
no.
no.
Trembling Hand
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I'd love to follow up my well "reasoned disapproval" because there is a lot in your post i don't understand but will be a bit busy today. So for a start I would love to see an example of how you can,
without completely blowing you position sizing.
pixel
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well, at least we're getting to a stage where I can rationally reply:
Firstly, I don't "blow position sizing", I merely adjust the calculation and set the stop loss accordingly. If I can't see a rather safe way to stop out for, say, under 5c loss and don't want to risk more that $500, I'll limit the position to 10,000. Needless to say, I won't take the trade if the risk outstrips the potential reward.
Secondly, I watch the trading action not on the Market Maker's platform, but on my MA and/or Pulse in real time ticks.
And finally, I pick a stock that I know trades "rather predictably" by my analysis. My current ratio is one stop-out in every six trades.
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Why are people so negative towards CFDs?
Lol, see my new post https://www.aussiestockforums.com/forums/showthread.php?t=24539
Lol, see my new post https://www.aussiestockforums.com/forums/showthread.php?t=24539
pixel
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Commiserations, yrebrac: that sounds like you've been shafted alright. So, obviously not all CFD providers are alike.
fwiw, I have an account with CMC and in 10 years haven't had an experience like that.
Maybe I'm just lucky...
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So, obviously not all CFD providers are alike.
fwiw, I have an account with CMC and in 10 years haven't had an experience like that.
Maybe I'm just lucky...
Thanks Pixel, I am going to get to the bottom of it. It may just be a liquidity issue in the end in which case there's still a lesson to learn. For the record I haven't had an issue trading the equity CFDs (RIO etc).
Trembling Hand
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But that to me is the point that doesn't make sense.
You have $100,000 capital. You risk 2% per trade = $2000
stop at 5 cent adverse move is 2000/0.05 = 40,000 shares held. How does do you arrive at,
