CFDs or IB with Margin?

[RazzaDazzla]

What % LVR do CFDs with providers like MFG or IGmarkets provide?

Or am I completely missing something? AFAIK, CFDs are synthetically the same as purchasing/shorting stocks on a margin?

Just trying to figure out if it is worth opening a CFD account or just trading on margin with IB? If I can get the same leverage with IB, why setup another account with another provider who'll charge more data/platform fees?

Obviously there are other pros/cons for having a dedicated CFD provider. One thing I am slightly aware of is that it can be difficult at times to get stock to short with IB.

 

[skc]

What % LVR do CFDs with providers like MFG or IGmarkets provide?

Or am I completely missing something? AFAIK, CFDs are synthetically the same as purchasing/shorting stocks on a margin?

Just trying to figure out if it is worth opening a CFD account or just trading on margin with IB? If I can get the same leverage with IB, why setup another account with another provider who'll charge more data/platform fees?

Obviously there are other pros/cons for having a dedicated CFD provider. One thing I am slightly aware of is that it can be difficult at times to get stock to short with IB.

Margins have different meanings between CFD and IB.

With CFD you are margin 100% and you pay interest on 100%. The "margin" as they call it is only a deposit for you to open your position. This deposit % varies by stock and can be as low as 5% or up to 100%. Margin calls are not really based on LVR, but how much money/free equity you have in your account.

IB margin also quite complicated depending on how much money you have in total. But it's not anywhere near what a CFD provider can give you. There is no shorting Aussie stock on IB btw.

 

[RazzaDazzla]

Thanks SKC.

So basically, a CFD provider can provide much better leverage/exposure than IB can if one were to utilise a margin with them.

Just a shame that there isn't a 'one stop shop' for all of ones stock, options a and CFDs.

I realise that CFDs have there advantages for short term trading; but I am reluctant to now have to sign up to another provider and pay more platform fees and data fees... Oh well, I guess that is the downside of playing this trading game. Would be good if IB had DMA CFDs!

 

[SmellyTerror]

IB is working on getting CFDs up and running, at least for ASX stuff. There's actually an ASX (only) CFD option in their data feeds, but you can't trade them yet. Not sure when they expect to go online (I called them about it, but I was pretty drunk and I don't remember the answer).

Regarding data fees, I've found IGM to be pretty good if you want to go fee-free. You can just use your other platforms for the live data, and use IGM to initiate the trade. If you don't want to do that, you can get free live data inside the order tickets, so you can check where you stand before you trigger a trade.

 

[RamonR]

Or am I completely missing something? AFAIK, CFDs are synthetically the same as purchasing/shorting stocks on a margin?

I found a huge difference in the liquidity.
Tried CFD's through comsec and found liquidity inadequate compared to using margin loans and buying stock on market.

 

[RazzaDazzla]

IB is working on getting CFDs up and running, at least for ASX stuff. There's actually an ASX (only) CFD option in their data feeds, but you can't trade them yet. Not sure when they expect to go online (I called them about it, but I was pretty drunk and I don't remember the answer).

Regarding data fees, I've found IGM to be pretty good if you want to go fee-free. You can just use your other platforms for the live data, and use IGM to initiate the trade. If you don't want to do that, you can get free live data inside the order tickets, so you can check where you stand before you trigger a trade.

Thanks for the thoughtful reply. Hope you weren't drunk when you typed it

So IB is getting on the ball with CFDs? Is this ASX Listed CFDs or are they going to provide DMA CFDs?

 

[SmellyTerror]

Razza: Well I know the data feed is for ASX listed (of course), but since no-one actually wants the bloody things, I'd hope they'd go for DMA etc once they're set up for it. I'll have to give them another call to check.

RamonR: I'm guessing you were going for the ASX listed CFDs? Those are weird little mutant children, and there's not much of a market for them. The more usual types (DMA and OTC) are about as liquid as the underlying stock (DMA being very much like trading stocks, OTC being a bit screwy).

Really depends what you do with them, I guess. I've found OTC to be just what I need, despite the occasionally scary slip. I'm running a couple of systems that generate a lot of signals, and 5%-odd margin / reasonably low brokerage is hard to go past. Running positive expectancy systems - ie, I'm not a complete tard - means I want to hold as many as I can and still be in a position to throw on more in a hurry. OTC CFDs let me do that.

Plus, hey, reliable shorting of Oz stocks. If I don't have some shorts and longs both, I get all twitchy.

So OTC can have some weird slipping (depending, as I understand it, on what the provider might have on their books) that's pretty rare, but scary when it happens; and you need to take the price at market, which is a pest (though, strangely, I almost always get it at exactly my trigger price, even with 50c fast movers, so /shrug). But if those costs still leave you enough expectancy and you have a big surplus of signals, then go for it.

If you've got more refined strategies that mean you want to take a more definite price on fewer triggers, at the expense of slightly higher brokerage and much higher margin (though still pretty decent - I think you're looking in the area of 20%, depending on who you're with) then DMA is worth a look.

If you're holding a reasonable time and expect some franked dividends (CFDs don't confer franking), then stocks on margin are probably the best bet.

(*Disclaimer: I'm pretty new to all of this, so please to take words with salt).

 

[SmellyTerror]

ZOMG examples of why CFD margin is a happy thing, for new people who might be reading (hey, I've got time on my hands. Plus, my reputation for long posts must be maintained!):

I'm running a 50k account.

My open positions in CFDs, if they were stocks directly held, would add up to a bit over 60k. Which I couldn’t afford.

They are tying up only 4k of my money in margin as CFDs.

I have about 8 working orders, worth about 140k. I could take all of them, and that costs me another 10k of margin total (volatile stocks force you up over the 5% mark - though note that when you move your stops up to and past break-even on existing positions, the margin goes down to zero). So even after that (and 20k in a non-CFD account) I’ve got some powder dry.

I can also size tight-stop trades. Here's something I've had running a few days: I've got BTA on a buy at 2.02. The bugger doesn't want to drop under 1.99, and my long running valuation comes in at about 2.25-2.30 at the very least, with a possibility of 2.70 or thereabouts if some of their new stuff pans out. In any case, I'm just looking to nab 10c from this position. I can put a tight stop at 1.98.

To correctly position this, even with my hail-mary stop of 1%, I'd need to buy 12500 shares ($500 is 1% of my capital, divided by 4c = 12500). If that was direct ownership, it'd cost me $25000, which is 50% of my account. No-way I want 50% of my account waiting for a single idea to come about. With a CFD, it'd be just about $1300 in margin (I'm actually only getting 10000 shares, to cover gaps a bit better, which will cost about 1k in margin).

At the same time, I can plonk down a second order to sell short at 1.98. A longer stop is called for, but a much more sure thing (long downtrend, descending triangle going on, it would be a sharp and crunchy break), so I extend my risk to 2%. I don't have to worry about keeping the capital in the bank, though - less than 2k margin is all I need for the 7000 shares I’ll want.

All up, that set-up would need most of my account behind it without margin, because I'd definitely need that short ready to roll at an instant's notice, and I can't rely on the long getting out without a bitch of a slip. With CFDs, it's a fairly trivial 6%, with only about half of that to maintain either position.

I should note that BTA gaps. A gap of 10c is not out of the question (which would mean a potential loss on my long of a bit over 2%). And of course a bigger gap can happen (though, honestly, it would take an act of god to get it under 1.60). So it’s even riskier than it looks, but manageable (I know BTA fairly well).

…but if it gets suspended and then comes back on at zero, I’ve just blown 40% of my account (10,000 * 2.02), and I’m only willing to risk that much because it’s a pretty small account. Any new folk should note that well. Risk levels are all very well, just make sure you’re not going to get wiped out by a disaster. With most CFD accounts, you CAN lose more than your account. If I went and bought 200,000 of BTA (and I could afford the margin at $26,000, which is about how much the original 10,000 shares would have cost by direct purchase), if that went bust I’d be up for $400,000 in losses, 8x my total account and almost certainly costing me my house. With margin, you need to look at both risk AND total position size.

Finally, if you follow my trade you will lose all your money, ‘cause I don’t know anything at all. Just sayin’. :

 

[RazzaDazzla]

Nice Post SmellyTerror!

Very good examples of how CFDs should be used! i.e. to allow exposure to more positions through smaller margin requirements than owning the shares outright.

Good warning to re. lossing more than your account! Some trap I'm sure some uninitiated can/have fallen into.

If you get any info from IB re. them offering DMA/OTC CFDs or about to offer it, please let us know.

In the meantime I might look into using my IB data feed as my primary data source and see how I go placing trades into IG or MFG without data.
If IG shows live prices on the ticket before you submit the order, then this could be good enough as I would have an IB data feed on another screen. I wonder if MFG has the same feature. Though if it is true DMA the price should be identical to the price being displayed by IB!

Interesting that you seem to prefer OTC CFDs. I thought the brokerage for OTC/DMA were quite comparable. I think I would be more comfortable using DMA; at least I would know that the sneaky market makers wouldn't be up to funny business!

 

[RamonR]

RamonR: I'm guessing you were going for the ASX listed CFDs? Those are weird little mutant children, and there's not much of a market for them. The more usual types (DMA and OTC) are about as liquid as the underlying stock (DMA being very much like trading stocks, OTC being a bit screwy).

Yep it was ASX listed CFD's.
Thanks for the tip about other types being more liquid.
But at this stage I have decided to trade with my margin loans , leaving the CFD's but when I want to go short

 

[SmellyTerror]

Sorry, I missed the question earlier.

I have preferred OTC simply for the greater margin available. MY CFD trading is set-up-and-wait stuff, and I never have time to be online during trading hours at the moment, so being in the book is of no real use to me, and neither are the auctions (usually). I'm generally trading very liquid critters and slippage usually isn't much. Plus, I'm not scalping, I'm going a couple of weeks on breakouts or good momentum, so usually it's more important to me to be in the trade than to get the best price...

...having said that, I'm getting really annoyed at the lack of stop-limit orders with my broker (IGM). Not that their DMA is any better. But big gaps through my price target (though fairly rare for the way I'm trading) or moves too fast to keep up with can really kick the crap out of me. I'm a bit embarrassed to have put up with it so long. I did some back of the envelope stuff and these rarities are seriously impacting my profitability.

I'll make a thread to ask for something with stop-limits.

 

[SmellyTerror]

So IB is getting on the ball with CFDs? Is this ASX Listed CFDs or are they going to provide DMA CFDs?

Update: IB say they are getting the more usual synthetic CFDs at some point, but they don't know when they'll be finished jumping through the necessary hoops.

 

[RazzaDazzla]

Update: IB say they are getting the more usual synthetic CFDs at some point, but they don't know when they'll be finished jumping through the necessary hoops.

"more usual synthetic CFDs"

This equate to DMA CFDs?

Update on my status:
I trade a medium/long term portfolio using IB. I trade a short term system using MFGlobal DMA CFDs.

Quite frankly, the MFG WebIress trading platform is a piece of junk! IB Craps all over it!

Though the commissions are substantially cheaper with MFG for trades less than $6,000. Once you go above this, IB is cheaper. So in the long run, I would much rather use IB for all my trading!

So if IB got there act together with DMA CFDs (NOT ASX CFDs) then I would be with them almost in an instant!

 

[SmellyTerror]

I'd guess DMA, since bare naked OTC pretty much rely on making customers lose money to turn a profit, and as far as I can see OTC systems always include some critically stupid feature to screw with you. Not really IB's style. Convoluted, yes. Critically stupid, no.

I'm moving to MFGlobal too, because even their dodgy WebIress is better than the crap used by the other CFD folk out there (that I've tried, anyway).

I only had one big problem with them: at the moment you can trigger a buy/sell, but until you log on next or call them after the trigger fires, it's got no stop. I 'aint touching that with a barge-pole. Fine for people who are online when they fill, of course - but potentially sitting without a stop for a whole day if I don't get time to log in? Bugger that.

Anyway, MFG expect to be able to attach stops to conditionals in the next month or so. Once they do, they become.... barely adequete. : Which is still the best I've found.

(Incidentally, the "critically stupid feature" in IGMarkets is the lack of stop-limit orders. I've been mitigating by being online at the open, but even then the occasional lapse (sometimes I have meetings I can't duck out of) has meant incredible amounts of slippage - often highly suspicious amounts of slippage, to my mind. Don't touch 'em).

 

[Market Sniper]

Not sure when they expect to go online (I called them about it, but I was pretty drunk and I don't remember the answer).



Cracking up at this comment!!!!!

 

[RazzaDazzla]

I'm moving to MFGlobal too, because even their dodgy WebIress is better than the crap used by the other CFD folk out there (that I've tried, anyway).

I only had one big problem with them: at the moment you can trigger a buy/sell, but until you log on next or call them after the trigger fires, it's got no stop. I 'aint touching that with a barge-pole. Fine for people who are online when they fill, of course - but potentially sitting without a stop for a whole day if I don't get time to log in? Bugger that.

I'm glad I'm not alone re. WebIress being a hunk of junk! My guy at MFG is a bit of an "answer for everything" kind of guy and always has some hot air to fill me up with when I complain about webIress.

Anyway, I feel your paid re. not being able to add stops to a contingent order untill after it is filled! My MFG guy says best he can do is setup an SMS alert and then I can call him and get him to add the stop if I'm away from the PC. Just means you would always have to carry around a piece of paper with your orders and subsequent stop losses ready to call up and put on if your original contingent order is triggered.

I actually got a bit short with my MFG guy today. I entered a contingent order in a hurry and I stupidly put the price in as $$.cc instead of just in cents. Needless to say I missed my fill (thankfully, the stock ended up going down). I wasn't sure why I missed the fill, but turns out it was my fat fingers being in a hurry and stupidly entering the decimal point.

This point alone is ridiculous! ASX is in dollars and cents, yet WebIress is in cents!

MFG guy then ended up running around in circles telling me I wouldn't have been filled anyway because I changed the order working time from 10:10:00 to 10:00:00. After he tried to bamboozle me with talk about the open auction etc. I commented that I wasn't sure how much longer I'd be an MFG customer for as the platform is garbage (I've got so many complaints about it, but that's probably for another thread). He then got defensive saying that it was my issue and that the platform was quite straight forward. I suggested he have a look at the IB platform to which he then went into a diatribe about how IB doesn't have a huge market share etc. As he wouldn't let me get any words in edgeways, I wished him good day and hung up.

So yeah, IB; if you bring DMA CFDs I'll be there in an instant! Even if it does cost me a few bucks more for brokerage if orders are under $6,000.

 

[SilverRanger]

Update: IB say they are getting the more usual synthetic CFDs at some point, but they don't know when they'll be finished jumping through the necessary hoops.

It's definitely good news, but how concrete is this information? I mean, I haven't seen this news anywhere other than here.

 

[SmellyTerror]

It's definitely good news, but how concrete is this information? I mean, I haven't seen this news anywhere other than here.

Call 'em and ask. The info is as trusty as the folk they employ in the call centre.


Razza: MFG are way too friendly. They make me think they're distracting me while their buddy goes for my wallet. I'd prefer the surly-but-trustworthy service at IB...
:

The "SMS -> call for a stop" thing is just too scary for me. I don't work without nets, not with that much leverage. I'm going to wait for real stops on entry. Again, fine for people who can get the stop on fast enough, but I can't rely on being available until after the close.

In the mean time, I just can't touch fast moving stocks on IGM, or anything that gaps much, because their triggered-market order is a killer. It's leaving me out of a lot of good fast trades, but at least I keep the finger-burning to a minimum. Pain in the ****, really.

...not to imply that I'm burning my fingers on my ****...

 

[johenmo]

I've been looking at CFDs again (for shorting) and talked with MFG a couple of weeks ago. Good to see some feedback about them.

Was also thinking CMC, even though they aren't DMA. Guy I know is happy with CMC. What are CMC like?

I have IB with margin already - but no shorting ability.

 

[RazzaDazzla]

I am washing my hands of MFG.

I was with them and paying 0.08% or minimum of $1 per trade thanks to a special offer.

16 trades a month and the platform/data fees were free.

MFG then tells me they can't sustain this special offer anymore and fees would be 0.1% or min of $10. I told them I would be utilising IB on margin for $6 and only paying interest on my debt rater than paying interest on the entirity of every open position.

I have since switch over to the eMclick platform which is a complete hunk of junk! Even worse than WEBIress! It gets me by, but it has. sooo many GOTCHAS! As an example, you can't even set a contingent order to trade a market order when it is hit! You have to set it to trigger a LIMIT order and your LIMIT price MUST be within 7 price levels of the price or the trade will be rejected! RIDICULOUS!

Anyway; for me, I'll be using IB on a margin. From what I've read, I beleive there margin is ~50%. This should give me enough to be set in the number of positions I require.

All in all, nice try MFG but the WEBIress platform is utter over priced garbage!