Beginner CFD questions

[sdgan1]

Hi Guys,

I'm new to CFD's and was wondering if someone could help me with this. Say I wanted to go long on BHP, and say that it closed today at $30.00. I want to place a buy order at $30.02 before the market opens tomorrow.

My question is how likely is this order getting executed? Do I have to bid substantially higher to get my order through? Assuming that the price goes up when the market opens, I may never get the chance to buy it tomorrow at the price I want. Am I correct?

Thanks

 

[Splint]

CFD questions

Hi,
I'm trying to learn more about CFDs and have a few questions.

Does a holder of a long CFD receive a dividend and imputation credits?
Does a holder of a short CFD make a cash payment to the value of the dividend and imputation credits?
When a stock has a split the price usually lowers proportionately to reflect the increase in numbers of shares, is the CFD adjusted in the same way or does it blindly follow the new price?
Do all CFDs have the same level of leverage, what is the leverage?
A CFD seems to be very much like a single stock futures contract, what's the difference?
Is there an expiry date for a CFD?
Are there any issues with liquidity on exchange traded CFDs?
Is it a good idea to steer clear of market makers?
Is there any advantage of shorting CFDs as opposed to shorting stocks?
Do you have any links to good pages which clearly explain CFDs?

Thanks
Splint

 

[Largesse]

Re: CFD questions

Does a holder of a long CFD receive a dividend and imputation credits? Yes
Does a holder of a short CFD make a cash payment to the value of the dividend and imputation credits? Yes
When a stock has a split the price usually lowers proportionately to reflect the increase in numbers of shares, is the CFD adjusted in the same way or does it blindly follow the new price? Read the CFD brochure on Commsec for this one
Do all CFDs have the same level of leverage, what is the leverage? No, varies for each underlying security/commodity/index/currency
A CFD seems to be very much like a single stock futures contract, what's the difference? Difference in contract value is settled daily, among other things
Is there an expiry date for a CFD? not that i am aware of
Are there any issues with liquidity on exchange traded CFDs? i don't know, but shouldn't be
Is it a good idea to steer clear of market makers? i am more comfortable with ASX CFD's rather than the one's offered by IG/CMC etc
Is there any advantage of shorting CFDs as opposed to shorting stocks? leverage?
Do you have any links to good pages which clearly explain CFDs? commsec.com.au, find the CFD brochure, it lays it out pretty clearly

 

[MichaelD]

Re: CFD questions

I trade MM CFDs with IG Markets and ASX CFDs with CommSec.


Does a holder of a long CFD receive a dividend and imputation credits?
Dividend - Yes.
Imputation Credits - No for most CFD providers
ASX CFDs - Yes

Does a holder of a short CFD make a cash payment to the value of the dividend and imputation credits?
Yes

When a stock has a split the price usually lowers proportionately to reflect the increase in numbers of shares, is the CFD adjusted in the same way or does it blindly follow the new price?
The CFD is adjusted according to the split, so a 2:1 split in the underlying share will reflect in a 2:1 split in the CFD position

Do all CFDs have the same level of leverage, what is the leverage?
No, it varies widely from as low as 1% to as high as 75% depending on the specific instrument. Most share CFDs in the ASX300 are around the 10% mark.

A CFD seems to be very much like a single stock futures contract, what's the difference? Is there an expiry date for a CFD?
A CFD over a share has no expiry date. CFDs can also be taken over indicies, currencies and options - most of these instruments track the underlying futures contract and thus have expiry dates.

Are there any issues with liquidity on exchange traded CFDs?
By exchange traded CFDs I presume you are referring to ASX CFDs. There is no liquidity at all in these instruments other than that provided by the designated market makers. The depth is a wasteland of inactivity. The Bid/Ask spread is always significantly wider than in the underlying market. (The worst I saw was in the early ASX CFD days when the initial takeover offer for RIO was announced. The real market spread was 3 cents. The ASX CFD spread at the same time was 10 dollars.) Most of the time now the spread is about double the underlying.

Is it a good idea to steer clear of market makers?
If you are talking about ASX CFDs, then there is no market apart from that provided by the market makers - very few traders use them.
If you are talking about over the counter CFDs in marketmaker model then the majority opinion is that it is better to use DMA models rather than MM models. I use MM and have adapted the way I use the CFDs to avoid the pitfalls associated with MM.

Is there any advantage of shorting CFDs as opposed to shorting stocks?
OTC CFDs - generally cheaper and easier.

Do you have any links to good pages which clearly explain CFDs?
READ THE PDS statements very, very carefully and understand all the conditions. If not, you will be surprised sooner or later by how the provider works.
Never, never, never use maximum leverage with CFDs. You will go broke and then some.
Before using CFDs make sure you can successfully trade the underlying instrument including understanding how to quantify and manage risk and then proceed to use the CFDs to allow you to take on risk above what your cash will allow.

 

[CFD]

Re: CFD questions

Is there any advantage of shorting CFDs as opposed to shorting stocks?

Further to the above another advantage is availability. A broker has to have shares lent to them available for you to short. During the best times for shorting there will very few stocks left for us! Contracts for the Difference on the other hand just trade the difference in price and stock does not necessarily change hands, especially with a MM.

CFD brokers have demo accounts where you can practice losing pretend money. A good way to see how they work.

 

[white_goodman]

Re: CFD questions

can someone explain or give advice on a good cfd provider?

ive been hearing bad things about IG and CMC on these forums? whats the competition like regarding fees/brokerage especially aswell as reliability?

is the difference between commsec cfd's (ASX CFD) and one say provided by IG is that the ASX CFD has greater security cos it goes through the Sydney Future Exchange? does that mean ASX CFD's are more expensive re. costs...

thanks in advance

 

[lasty]

Re: CFD questions

"can someone explain or give advice on a good cfd provider?

ive been hearing bad things about IG and CMC on these forums? whats the competition like regarding fees/brokerage especially aswell as reliability?

is the difference between commsec cfd's (ASX CFD) and one say provided by IG is that the ASX CFD has greater security cos it goes through the Sydney Future Exchange? does that mean ASX CFD's are more expensive re. costs..."

IG and CMC are the powerhouses.
To get a foothold in the market place the ASX CFD had to spin it and they came up with "security".
Goldmans bought 10% of CMC for $300 million a while ago.
Thats good enough security for me.

 

[white_goodman]

Re: CFD questions

"can someone explain or give advice on a good cfd provider?

ive been hearing bad things about IG and CMC on these forums? whats the competition like regarding fees/brokerage especially aswell as reliability?

is the difference between commsec cfd's (ASX CFD) and one say provided by IG is that the ASX CFD has greater security cos it goes through the Sydney Future Exchange? does that mean ASX CFD's are more expensive re. costs..."

IG and CMC are the powerhouses.
To get a foothold in the market place the ASX CFD had to spin it and they came up with "security".
Goldmans bought 10% of CMC for $300 million a while ago.
Thats good enough security for me.

i jumped into bed with IG, largest market cap in the world did it for me

 

[storchyman]

Re: CFD questions

This might be a silly question, but, what is the differences beetween commsec asx cfds and commsec otc cfds?

 

[nigel foxwell]

Re: CFD questions

The ASX CFD's are the ones that Commsec Trade through the SFE, and put up by ASX Limited. They have different rules (i.e. things like calculating daily settlement prices which do not match the actual share price, complictaed margin requirements etc.) The Commsec OTC CFD's are the market-maker type CFD's such as those provided by IG/CMC/GFT etc. Commsec however charge higher commisions and have the worlds worst trading platform. Also as a side note (as I did intend to trade them until I found out all of this after sign-up) Commsec make you do an over-the-phone test to make sure you know the ins and outs of their policies before you can set a stop loss!! Thats right, they won't give you access to a conditional order (their only method of setting stops) without doing a test. GGF I said to them after I passed the test and tried to use their web-interface becuase their fat-client doesn't run on Vista, nor did they give a crap. Also, Commsec make you depost an amount into a foreign currency pool to trade in foreign markets. i.e. if you want to trade US CFDs you need to do a currency conversion into a separate pool and you can only use that to trade, then transfer it back when you are finished, as opposed to the on-the-fly FX for every other MM CFD firm. A complete waste of time AFIAC.

 

[sammy84]

Re: CFD questions

Considering that when a CFD is bought the buyers name is't placed on the stock register, my question is....Have CFD's technically made it possible for insider trading occur?

 

[wade]

CFD question

Thinking of using Macquarie prime as a broker i believe it is DMA. Not sure how CFD's work regarding liquidity, are they infinitely liquid? is the broker just hedging against your position? or do you have to actually find a buyer/seller for your cfd's? and if thats the case how much less liquid is it compared to the asx? (blue chips).
Do CFD's automatically follow the stocks real price even if there are no trades for the day? just not sure how they work.

 

[SmellyTerror]

Re: CFD question

Most DMA orders are actually placed by your provider. So you'll see your order pop up in the book, just like any other order, and it'll be filled as / if it's hit, just like any other order.

or do you have to actually find a buyer/seller for your cfd's? and if thats the case how much less liquid is it compared to the asx? (blue chips).

don't really understand the question. If you put in an order fo a DMA CFD for BHP, the provider puts that order into the market, and as they get filled, so do you. Essentially, you're just telling them to place an order.

So it's exactly as liquid as the asx, if that's what you're trading, because it IS the asx.

 

[wade]

Re: CFD question

oohh right, thanks for clearing that up.