ASX CFDs - a cautionary tale

[MichaelD]

Just thought I'd outline what has happened to me with ASX CFDs as a caution for anyone considering trading them.

As always, there is NO element of "it's not my fault" in this post. I am simply describing what happened to me and why this makes ASX CFDs an unacceptable risk vehicle for me.

I have a somewhat experimental money management model which I have developed for use with CFDs. It is designed to achieve the following goals;
1. Never be margin called unexpectedly.
2. Maintain as little as possible money in the non interest bearing CFD account and as much as possible in the interest bearing money management account.
Planning for and managing margin calls are a part of this plan - it is VERY important to note that the capital allocated to a given trade is ALWAYS completely available in an interest bearing account. I'm not playing with money I don't have.

I chose to use ASX CFDs to test this money management model as I could segregate this trading and money management from the rest of my trading.

I check the positions daily as part of my risk management routine.

Wednesday night - there was sufficient margin in the account. There were two small long positions in RIO open.
Thursday - large gap down with RIO (but not that large - NOT large enough to have hit my stop, but large enough to go into margin call).
Thursday night - checked the statement as part of my routine.

Through the course of Thursday, one of my two RIO positions had been sold down in 4 tranches; 15, 2, 1 and 1 CFDs. Each incurred $15 brokerage.

No email notification of a margin call.
No phone call asking for margin.
PLENTY of cash in the interest bearing account (CDIA account with CBA. ASX CFD account also with CBA).

Basically, NO opportunity to correct the margin deficit, just the uncontrolled sell off. If this is the normal behaviour of ASX CFDs with CommSec then this is basically a forced intraday stop which I have no control over.

I am not impressed.

CBA's response to my not impressed email will be interesting.

 

[It's Snake Pliskin]

Just thought I'd outline what has happened to me with ASX CFDs as a caution for anyone considering trading them.

As always, there is NO element of "it's not my fault" in this post. I am simply describing what happened to me and why this makes ASX CFDs an unacceptable risk vehicle for me.

I have a somewhat experimental money management model which I have developed for use with CFDs. It is designed to achieve the following goals;
1. Never be margin called unexpectedly.
2. Maintain as little as possible money in the non interest bearing CFD account and as much as possible in the interest bearing money management account.
Planning for and managing margin calls are a part of this plan - it is VERY important to note that the capital allocated to a given trade is ALWAYS completely available in an interest bearing account. I'm not playing with money I don't have.

I chose to use ASX CFDs to test this money management model as I could segregate this trading and money management from the rest of my trading.

I check the positions daily as part of my risk management routine.

Wednesday night - there was sufficient margin in the account. There were two small long positions in RIO open.
Thursday - large gap down with RIO (but not that large - NOT large enough to have hit my stop, but large enough to go into margin call).
Thursday night - checked the statement as part of my routine.

Through the course of Thursday, one of my two RIO positions had been sold down in 4 tranches; 15, 2, 1 and 1 CFDs. Each incurred $15 brokerage.

No email notification of a margin call.
No phone call asking for margin.
PLENTY of cash in the interest bearing account (CDIA account with CBA. ASX CFD account also with CBA).

Basically, NO opportunity to correct the margin deficit, just the uncontrolled sell off. If this is the normal behaviour of ASX CFDs with CommSec then this is basically a forced intraday stop which I have no control over.

I am not impressed.

CBA's response to my not impressed email will be interesting.

Sorry to hear of the trouble Michael.
What does the fine print say?

 

[MichaelD]

What does the fine print say?

It says positions are marked to market at the close of trade daily and margin calls will be notified via phone or SMS or email or statement and need to be fixed by 2pm the next day (which of course I have no problem with).

i.e. The positions should have been marked to market on the close Thursday and then a margin call issued for settlement by 2pm Friday. Instead, the positions were closed intraday Thursday without notification.

Will continue to comb through the fine print in case I missed something (but I DID read through ALL the PDS carefully before I opened the account and have just re-read the margin call section).

(note: I'm not feeling sorry for myself - this is an unanticipated risk event which I must find the solution for so I can best manage this position going forwards).

 

[jersey10]

fair enough taking responsibility for your exposure to risk, however there surely is a difference between taking responsibility for your exposure to risk and being stitched up by an organisation who can't follow their own rules.

 

[Uncle Festivus]

Simple - ditch Comsuc & go for IB, MF Global or Etrade DMA CFD's if you want to trade the odd share as well (and they pay interest on your CFD account)

 

[IFocus]

(but not that large - NOT large enough to have hit my stop, but large enough to go into margin call).

Michael surprised you didn't have enough funds in the account to cover a stop loss.

If a broker manages their margin facility aggressively then that would give me comfort for the security of my account generally.

 

[Timmy]

fair enough taking responsibility for your exposure to risk, however there surely is a difference between taking responsibility for your exposure to risk and being stitched up by an organisation who can't follow their own rules.

Hear, hear.

 

[Wysiwyg]

fair enough taking responsibility for your exposure to risk, however there surely is a difference between taking responsibility for your exposure to risk and being stitched up by an organisation who can't follow their own rules.

Even more annoying is when you can`t ping them for a sleight of hand.If I were not civilised i would be sticking a skewer through some eyeballs.

 

[MichaelD]

Michael surprised you didn't have enough funds in the account to cover a stop loss.

That's what I usually do in margin accounts, but I wanted to experiment with having even less non interest bearing cash.

 

[MichaelD]

Hmmm.

CBA's response to my "please explain" email appears to have been to close out both positions entirely (neither was in margin call).

Not impressed at all.

 

[Trembling Hand]

Hmmm.

CBA's response to my "please explain" email appears to have been to close out both positions entirely (neither was in margin call).

Not impressed at all.

WHAT!! Why??

Comsuc!!

 

[MichaelD]

Further investigation of their fine print reveals the reason - they will automatically close out positions when the Gross Liquidation Value of your portfolio is below $1,000.

A nasty trap - clearly the intended strategy of keeping minimal $ in the non interest bearing ASX CFD account and topping up when margin called is not possible and I'll need to keep funds sufficient to cover down to and in fact past my stop loss in there in order to avoid unexpected surprises in the future.