Is a CFD viable for medium to long term?

If you want to get some leverage, would a loan be better ?

So if you put down 20 dollars, to borrow 100 but the lowest you need is 5 dollars does that mean the value of your initial deposit would need to fall to 5 dollars before you would get a call (or more likely a closed position?) ?

If this is the case why is the CFD not seen as a medium to long term holding strategy.

I've been putting money into stocks each fortnight (when I get paid) so just wondering about ways to leverage it.

Re: Is a CFD viable for medium to long term ?

Mrmagoo said:

If you want to get some leverage, would a loan be better ?

So if you put down 20 dollars, to borrow 100 but the lowest you need is 5 dollars does that mean the value of your initial deposit would need to fall to 5 dollars before you would get a call (or more likely a closed position?) ?

If this is the case why is the CFD not seen as a medium to long term holding strategy.

I've been putting money into stocks each fortnight (when I get paid) so just wondering about ways to leverage it.

Click to expand...

If you're trading then using margin (CFDs or a Loan, all margin) is fine if you use stops to control your risk. If you are not using stops then you are not controlling risk, therefore not only risking your hard earned, but someone elses.....

CanOz

Re: Is a CFD viable for medium to long term ?

You don't own anything with a CFD, which is a scary place to put long-term investments.

You also add counterparty risk to the table. Not only do you have to deal with the performance of the underlying price of the instrument you're investing in, you also run the risk of the counterparty, the CFD provider, failing. Happened to MF Global, could happen again. If you were long (or short) a portfolio of shares or indices using CFDs you would have the same counterparty for all of them - the CFD provider. You aren't really diversified at all as all the money is with one point.

I would take short term positions but I wouldn't touch anything with retirement savings or money I can't afford to lose. It's a betting platform to me.

For one thing you pay interest on your whole position with CFDs. You might have $9000 in your account and you've got $5000 worth of open positions with CFDs but you'll still pay interest on the the $5000.

What about for a month or two ?

If I thought things are going well and a stock will rise on average, say I put $500 per week into a stock.. if I leverage it with a CFD that could be equivelant of 2k a week.

I trade cfd's using end of day data. Typical trades are 3-4 weeks.

Advantages.
Leverage,
You can start with as little as $2k.
Stop opens and closes,
Can short trade,
Wide range of instruments in one account (index, forex, futures, global),
Instant settlement (not sure if shares still have a delay-it's been a while)
The interest rates are low,
get paid interest when short - although small
receive dividends (but also pay them when short)
Low brokerage, no ongoing fees
You only risk a max of what is in your account. If you are about to be wiped out they will close you based on margin, exception is large gaps which could do some damage, but you can also get guaranteed stops to cover that.
You can also have a hedging short enter on stop order sitting there just in case a crash comes.

To be safe make sure your broker keeps your money in a seperate bank, and keep the account low, you only need enough to cover margins.

Dont get confused by people talking about 'leverage'. Just understand that if you buy 1000 shares and they fall $1, you lose $1000. If you buy 1000 CFD's and they fall $1, you lose $1000. It's the same, the only difference is how much money you need to buy the 1000 shares. For shares you should position size based on your maximium risk per trade, it's exactly the same for cfd's. Work out how much you are prepared to risk and only buy as many as that will allow - exactly the same as shares, options, warrants, forex .....anything.

Once you understand that they are a great product. I would never go back to shares, warrants or options.