Question about CFDs

skc · 29 September 2009

danno75 said:
Just a couple of statements to clear my head as I am still in the decision process about CFD's.

1.
As a starter if I had $10,000 to begin with and was to buy standard shares with the thought of trading in the medium term >1 week <6 months and I chose to buy 5 lots of $2000 (not including brokerage for this example) I could get my $10,000 worth.
If I had $10,000 in a CFD account with leverage to $50,000 but only chose to work with the $10,000 as maximum exposure and end up with the same 5 x $2000 packages would that keep things a bit safer.

The exposure is entirely the same, you will never be margin called either way, the maximum to lose is $10K, so neither is safer than the other.

danno75 said:
The reason I ask is that I am not very often home in the mother country and do not want to have to deal with excessive amounts of mail as per standard stock purchases that send out share certificates, board meeting announcements etc.

You can choose electronic stock communications for most companies if this is your concern.

danno75 said:
2.
Currently the online broker I use charges around $38 for an equity trade but only $11 or 11% depending on the size of the trade plus interest so that could be one reason for going with the CFD trades i.e. reduced brokerage?

Any words of wisdom would be appreciated

Danno

Brokerage cost is a saving, but needs to balance with interest cost like you pointed out. Interest cost can be significant with CFDs as they are charged on your full position size. One way to look at it is to consider your intended average holding time. Say for a $2K position, you can save brokerage of $54 per trade ($38x2 - $11x2). This saving will cover interest costs for ~120-150 days, depending on interest rate and share price.

chesl73 · 9 October 2009

Hi - new to the forums and trading and keen to learn. I have a question similiar to above...

As a newbie trader, I do not want leverage and ideally just want to trade stocks for periods ranging from 5 days to 3 months. However, it seems to me that I have to do this with the likes of Commsec and a basic trade will cost me $20.
If I have a CFD account I can trade for around $8-$10, I can apply auto stop losses and even auto trailing stops all for free.
So, ideally I would like the benefits of the CFD account but without the leverage and interest charges.

On the IGMarkets/CMCMarkets websites they say trading from 5% margin but what if I don't want margin? What if I want 50% or 80% or 100% margin, would they let me do this? ie, just have an account with my own money and trade CFDs? Would I still then get the interest charges?
It still seems like a better option though with the stop losses etc and the ability to sell short when I'm confident enough to do so.

So, what would people recommend?

Thanks

skc · 10 October 2009

chesl73 said:
Hi - new to the forums and trading and keen to learn. I have a question similiar to above...

As a newbie trader, I do not want leverage and ideally just want to trade stocks for periods ranging from 5 days to 3 months. However, it seems to me that I have to do this with the likes of Commsec and a basic trade will cost me $20.
If I have a CFD account I can trade for around $8-$10, I can apply auto stop losses and even auto trailing stops all for free.
So, ideally I would like the benefits of the CFD account but without the leverage and interest charges.

On the IGMarkets/CMCMarkets websites they say trading from 5% margin but what if I don't want margin? What if I want 50% or 80% or 100% margin, would they let me do this? ie, just have an account with my own money and trade CFDs? Would I still then get the interest charges?
It still seems like a better option though with the stop losses etc and the ability to sell short when I'm confident enough to do so.

So, what would people recommend?

Thanks

I have not come across a CFD provider that let you choose your margin level. These guys have to make money somehow. If your only motivation is to reduce brokerage than look at Interactive Brokers with $6 / 0.08% trades. Minimum balance $10K I think. Plenty of information on this forum on them. You will still need a CFD provider for shorts though.

skyQuake · 10 October 2009

chesl73 said:
Hi - new to the forums and trading and keen to learn. I have a question similiar to above...

As a newbie trader, I do not want leverage and ideally just want to trade stocks for periods ranging from 5 days to 3 months. However, it seems to me that I have to do this with the likes of Commsec and a basic trade will cost me $20.
If I have a CFD account I can trade for around $8-$10, I can apply auto stop losses and even auto trailing stops all for free.
So, ideally I would like the benefits of the CFD account but without the leverage and interest charges.

On the IGMarkets/CMCMarkets websites they say trading from 5% margin but what if I don't want margin? What if I want 50% or 80% or 100% margin, would they let me do this? ie, just have an account with my own money and trade CFDs? Would I still then get the interest charges?
It still seems like a better option though with the stop losses etc and the ability to sell short when I'm confident enough to do so.

So, what would people recommend?

Thanks

You cannot do 100% margin, but if you are disciplined enough, you can keep yourself honest (maybe with a spreadsheet or something).

clayton4115 · 10 October 2009

igmarkets site

is it down? as i cannot log into the trading platform!

Hend0 · 10 October 2009

Food for thought, as an alternative to a 'stop loss' - what do you do when it gaps.
Consider buying puts to protect your initial outlay.

eg
$10 000 to invest for CFD's
split it in half, use half for the CFDs and the other half to buy the protective puts, plus a few more to cover your costs entirely if your position moves against you. It is from memory perhaps another 20-30%.

If your chosen instrument rises, then you need to rise x% until you meet break even, then its all leveraged profits.
If your position moves against you and on expiry your puts are ITM then you can sell out and can sometimes lose no money/make a little money.

I'm no expert on this, however this is something I have briefly looked into in conjunction with more advanced options positions.

Cheers,
H

Ardyne · 10 October 2009

hendo , thats the only way I trade except instead of cfd's i use Leveraged Equities which let you do it with a margin loan. No margin calls which is great and you can sell calls also to reach profit targets etc

Question about CFDs

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