CFD Questions

[jono1887]

As CFDs are based on the price of the underlying stock. Say a penny stock like CER is at 0.10 and I buy as much as I can in CFDs leveraged to the max. Then I ' buy just enough CER 'actual' stocks til the last traded price is at 0.105 and sell my CFDs at the 0.105 price... is this possible??

 

[Aussiest]

Hahaha, i like your moxy. I guess it's possible, but the question is, would you be able to find a buyer at 0.105? You most likely would if they saw a big buy order, but what is the liquidity like? Surely penny stock traders are switched on to tactics such as this?

I'm looking forward to more experienced traders answering this question as it's interesting

 

[beerwm]

if the cfds are DMA cfds - then it wouldnt work. as the order passes onto the market like regular stock.

if it's MM cfds then there's no guarantee the price is a direct reflection of the 'actual' stock price, this is my understanding.

anyone know what MM cfds are priced according to?

 

[jono1887]

Hahaha, i like your moxy. I guess it's possible, but the question is, would you be able to find a buyer at 0.105? You most likely would if they saw a big buy order, but what is the liquidity like? Surely penny stock traders are switched on to tactics such as this?

I'm looking forward to more experienced traders answering this question as it's interesting

btw I'm not referring to ASX CFDs but the ones from Comsec... I think they're the over-the-counter CFDs

 

[Aussiest]

if the cfds are DMA cfds - then it wouldnt work. as the order passes onto the market like regular stock.

...

anyone know what MM cfds are priced according to?

My understanding is that Jono is asking in relation to clearing out the "bid" (buy side) at 0.10, to sort of create false demand, then selling into 0.105 to profit from small price hike

 

[Wysiwyg]

As CFDs are based on the price of the underlying stock. Say a penny stock like CER is at 0.10 and I buy as much as I can in CFDs leveraged to the max. Then I ' buy just enough CER 'actual' stocks til the last traded price is at 0.105 and sell my CFDs at the 0.105 price... is this possible??

Another anomaly is orders being filled when the real bid/ask has not the full number of shares. Buy 1000 ANZ and order filled with 300 on offer. It`s not real mate and is hardly transparent. They pay out of their kitty.

 

[Aussiest]

As CFDs are based on the price of the underlying stock. Say a penny stock like CER is at 0.10 and I buy as much as I can in CFDs leveraged to the max. Then I ' buy just enough CER 'actual' stocks til the last traded price is at 0.105 and sell my CFDs at the 0.105 price... is this possible??

EG: buy up big on CER CFDs at 0.10. To get market price, you will have to use DMA CFDs, therefore they will appear in the market. Place a sell order at 0.105. A whole lot of CER shares appear in the market depth at 0.105. Suddenly there is false selling pressure. You buy the remaining shares from 0.10 - 0.105. Even if you manage to sell some of your CFDs at 0.105, what are you going to do with the rest of the shares you bought? What if there weren't enough buyers for CER at 0.105? Will the profit you get out of the CER CFD trade be enough to cover losses in the shares if you get stopped out later?

I dunno, not entirely sure what you intended with your post, but that is one scenario. If you use market maker CFDs, your plan wouldn't work.

 

[jono1887]

Normally when CER is balancing between 0.10 and 0.105, there would be ~2,000,000 shares at 0.10 to push the price up to 0.105 ($200,000).
Say I buy $200,000 CER CFDs leveraged at 1:20 or 5% I would be holding 4M worth right. I use the other $200k to buy out the actual stock of CER til it gets to 0.105 and sell all my CFDs for a profit of $4M x 5% or $200,000.

The fact that I'm still holding 2,000,000 shares of CER is irrelevant as I could simply sell them at 0.099 and still make an overall profit of 198k

The reason I started this tread was to know if this is viable? Although I know the concept is probably stupid.... its just a hypothetical for fun...

 

[vincent191]

I am with IG and they have a limit on junior stock. For example they will only write a maximum of 2,000 shares per order. So, if I want to purchase 10,000 shares I have to put in 5 orders. So I guess there is a problem buying large parcels of penny stock. Anyone experience the same??

 

[skyQuake]

Haha, nice effort but unfortunately others have screwed the CFD providers before so they have taken measures against this.

CER example - Gettin in at $0.10, problem is bid/ask is 10c/10.5c; You can only sell on the BID not the ask. So you'll breakeven at best.

Wsyiwyg, your example can be taken further; Find a illiquid stock with a large spread, put in a high bid, short the CFD, immediately pull your bid.
Put in a low ask, cover the CFD, pull your ask
However after the the first 3 or 4 attempts you will get a polite phonecall telling you they know wut u're doing

 

[beerwm]

Wsyiwyg, your example can be taken further; Find a illiquid stock with a large spread, put in a high bid, short the CFD, immediately pull your bid.
Put in a low ask, cover the CFD, pull your ask
However after the the first 3 or 4 attempts you will get a polite phonecall telling you they know wut u're doing

haha, clever

 

[jono1887]

Haha, nice effort but unfortunately others have screwed the CFD providers before so they have taken measures against this.

CER example - Gettin in at $0.10, problem is bid/ask is 10c/10.5c; You can only sell on the BID not the ask. So you'll breakeven at best.

Wsyiwyg, your example can be taken further; Find a illiquid stock with a large spread, put in a high bid, short the CFD, immediately pull your bid.
Put in a low ask, cover the CFD, pull your ask
However after the the first 3 or 4 attempts you will get a polite phonecall telling you they know wut u're doing

I take it this is from experience?

 

[Wysiwyg]

However after the the first 3 or 4 attempts you will get a polite phonecall telling you they know wut u're doing

Lordy lordy, legal robbery. :cowboy:

 

[skc]

Jono,

Your idea wouldn't work as there is a liquidity limit to OTC CFDs. This liquidity can sometimes be greater than the real market, but usually not substantially greater.

E.g. I tried to buy ~700 RIV shares today with IG OTC when there were only 300 in the real depth. The order was rejected. So I doubt you are able to buy 4m CER when the real market only offer 200K.

And as SkyQ pointed out, you need to raise the bid to $0.105 before you can sell your OTC CFD for a profit. You bloody hope that there aren't sell orders on the sideline...

I also tried the phantom bid in large spread idea...the bid/ask was $1.5 / $1.6. I put in 10 shares bid at $1.58 and tried to short 1000 shares with OTC CFD.

The outcome? Got my order rejected with the CFD provider, plus becoming a proud owner of 10 shares!

 

[skyQuake]

I take it this is from experience?

One of the rare lessons in life that actually gives you money.

 

[skc]

Haha, nice effort but unfortunately others have screwed the CFD providers before so they have taken measures against this.

CER example - Gettin in at $0.10, problem is bid/ask is 10c/10.5c; You can only sell on the BID not the ask. So you'll breakeven at best.

Wsyiwyg, your example can be taken further; Find a illiquid stock with a large spread, put in a high bid, short the CFD, immediately pull your bid.
Put in a low ask, cover the CFD, pull your ask
However after the the first 3 or 4 attempts you will get a polite phonecall telling you they know wut u're doing

This will work if you use 2 different providers. Long with one and short with the other. Then cover when the spread is tightened.

The potential pit fall is that your high bid / low ask will get hit before you know it. So I don't know if it is a great strategy.

You will also need a trading program that alerts you to wide spreads. I am not aware of such.

 

[skyQuake]

This will work if you use 2 different providers. Long with one and short with the other. Then cover when the spread is tightened.

The potential pit fall is that your high bid / low ask will get hit before you know it. So I don't know if it is a great strategy.

You will also need a trading program that alerts you to wide spreads. I am not aware of such.

Problem is they get you once they try to hedge underlying and realize theres no real bid/ask.

Also, you don't need a program. I was just importing data into a spreadsheet and then sorting out max spread. CDI, PAG, MSL, RIC were a few notable examples

 

[jono1887]

One of the rare lessons in life that actually gives you money.

So what would've happen if you continued? Wouldnt it have worked it you used 2 brokers and did it with a friend on 2 computers?

 

[$20shoes]

What CFD brokers offer Buy Stop Limit orders? (That is, if I expect prices to move higher, I want to trigger a buy stop and only have my order filled if CFDs can be purchased within my my specified range).

Moving away from GoMarkets, there doesnt seem to be many - City Index do not, nor does IG Markets. I can't believe these contingent orders are not more common - if you're not in front of your screen how do you deal with gaps or orders filled at some faraway price caused by some fast movement.
Assume I may have to start forking out for IRESS platform??

 

[kam75]

What CFD brokers offer Buy Stop Limit orders? (That is, if I expect prices to move higher, I want to trigger a buy stop and only have my order filled if CFDs can be purchased within my my specified range).

Only one, MF Global. The others will just have a field day with your orders.