Trading CFDs

Re: Trading CFD's

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

Re: Trading CFD's

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

Re: Trading CFD's

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

Re: Trading CFD's

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

Re: Trading CFD's

tridean said:

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

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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!

Re: Trading CFD's

Hi Richkid,

It is here from this post:

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

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

Re: Trading CFD's

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

Re: Trading CFD's

drJ

GMAIL ??

Curious..what is g-mail?

Re: Trading CFD's

The Barbarian Investor said:

drJ

GMAIL ??

Curious..what is g-mail?

Click to expand...

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.

Re: Trading CFD's

positivecashflow said:

Hi Richkid,

It is here from this post:

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

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

Click to expand...

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?

Re: Trading CFD's

wayneL said:

Another reason not to trade CFD's.

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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.

Re: Trading CFD's

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

Re: Trading CFD's

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.

Re: Trading CFD's

rozella said:

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

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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).

Re: Trading CFD's

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...

Re: Trading CFD's

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.

Re: Trading CFD's

markrmau said:

However, obviously the advantage with cfd's is you can easily short,

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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.

Re: Trading CFD's

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

Re: Trading CFD's

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).

Click to expand...

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,

Re: Trading CFD's

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