ZOMG examples of why CFD margin is a happy thing, for new people who might be reading (hey, I've got time on my hands. Plus, my reputation for long posts must be maintained!):
I'm running a 50k account.
My open positions in CFDs, if they were stocks directly held, would add up to a bit over 60k. Which I couldn’t afford.
They are tying up only 4k of my money in margin as CFDs.
I have about 8 working orders, worth about 140k. I could take all of them, and that costs me another 10k of margin total (volatile stocks force you up over the 5% mark - though note that when you move your stops up to and past break-even on existing positions, the margin goes down to zero). So even after that (and 20k in a non-CFD account) I’ve got some powder dry.
I can also size tight-stop trades. Here's something I've had running a few days: I've got BTA on a buy at 2.02. The bugger doesn't want to drop under 1.99, and my long running valuation comes in at about 2.25-2.30 at the very least, with a possibility of 2.70 or thereabouts if some of their new stuff pans out. In any case, I'm just looking to nab 10c from this position. I can put a tight stop at 1.98.
To correctly position this, even with my hail-mary stop of 1%, I'd need to buy 12500 shares ($500 is 1% of my capital, divided by 4c = 12500). If that was direct ownership, it'd cost me $25000, which is 50% of my account. No-way I want 50% of my account waiting for a single idea to come about. With a CFD, it'd be just about $1300 in margin (I'm actually only getting 10000 shares, to cover gaps a bit better, which will cost about 1k in margin).
At the same time, I can plonk down a second order to sell short at 1.98. A longer stop is called for, but a much more sure thing (long downtrend, descending triangle going on, it would be a sharp and crunchy break), so I extend my risk to 2%. I don't have to worry about keeping the capital in the bank, though - less than 2k margin is all I need for the 7000 shares I’ll want.
All up, that set-up would need most of my account behind it without margin, because I'd definitely need that short ready to roll at an instant's notice, and I can't rely on the long getting out without a bitch of a slip. With CFDs, it's a fairly trivial 6%, with only about half of that to maintain either position.
I should note that BTA gaps. A gap of 10c is not out of the question (which would mean a potential loss on my long of a bit over 2%). And of course a bigger gap can happen (though, honestly, it would take an act of god to get it under 1.60). So it’s even riskier than it looks, but manageable (I know BTA fairly well).
…but if it gets suspended and then comes back on at zero, I’ve just blown 40% of my account (10,000 * 2.02), and I’m only willing to risk that much because it’s a pretty small account. Any new folk should note that well. Risk levels are all very well, just make sure you’re not going to get wiped out by a disaster. With most CFD accounts, you CAN lose more than your account. If I went and bought 200,000 of BTA (and I could afford the margin at $26,000, which is about how much the original 10,000 shares would have cost by direct purchase), if that went bust I’d be up for $400,000 in losses, 8x my total account and almost certainly costing me my house. With margin, you need to look at both risk AND total position size.
Finally, if you follow my trade you will lose all your money, ‘cause I don’t know anything at all. Just sayin’.
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