Negativity towards CFDs

[skyQuake]

Buying stock, ie buying $100,000 of BHP CFD's @ $35 each, then using protective puts at a 35 strike to hedge the downside risk.

Assuming margin is 25% you are controlling $100k using $25k with no downside risk + cost of your puts.

The only costs would be interest + cost of options.


I personally dont like the idea of using CFD's with long term investments. But im keen to hear other persons views.

Why not just buy calls instead if you're worried about downside? Esp in this low vol environment

 

[cynic]

...
I've heard (and in my "learning days" been the object of) some shockers by not so reputable brokers. Learned from the experience and moved on...

+1

Recently a friend after having a dissatisfying experience with his provider asked me to check into the details of services offered by my provider. Whilst searching for the requisite information on my provider's website I discovered the following statement buried in the fine print:
.

As a part of our market risk management, we may take the opposite side of your trade.

This would seem to suggest the potential for conflicts of interest to arise in the provider/client relationship. (i.e. is your CFD provider likely to accept the loss on your profitable trades after taking the opposite side?).

Needless to say I am now being doubly vigilant and am prepared to change to another provider in the event of any unsatisfactory arisings.

 

[Trembling Hand]

As a part of our market risk management, we may take the opposite side of your trade.

This would seem to suggest the potential for conflicts of interest to arise in the provider/client relationship. (i.e. is your CFD provider likely to accept the loss on your profitable trades after taking the opposite side?).

Needless to say I am now being doubly vigilant and am prepared to change to another provider in the event of any unsatisfactory arisings.

Mate if they are a MM CFD they ALL take the other side. Why would they pass it on to the market or hedge when they expect you to lose.

 

[markforex]

Mate if they are a MM CFD they ALL take the other side. Why would they pass it on to the market or hedge when they expect you to lose.

People have wisened up and now realized how CFD brokers really make their money and thats from their clients losses. Its sad but true, just pick up an magazine and you will see gloss adverts from the brokers in question.

The only real choice is to either go with a DMA CFD broker who passes on all positions into the market or trade the shares themselves.

Thats my 2cents anyway. The choice is always yours.

 

[Smurf1976]

If my trades lose, they keep the money. That's the business model - most customers lose, and they know it. No different to a casino.

Also, just like a casino, anyone who makes a consistent profit may find themselves somewhat unpopular, especially when it comes time to withdraw funds from the account.

I made the mistake of using one of these companies some years ago. In hindsight, it ought to have been obvious. Deposit money anytime I liked via electronic means. Fill out some forms, send emails and wait for processing if I wanted to withdraw. Pretty obviously they aren't expecting too many withdrawals, and are manually keeping a watch on anyone who does make a profit.

 

[zac]

Sounds like some people here have really been screwed over with CFD's.
I use them but havent had any surprises with them as such.

I think the broker I use tho is different to most others. The spread is the same as with stocks and I know upfront what the brokerage fee is.
Only thing I really have to worry about is interest and on American equities its not much.

 

[OGRooney]

CFDs are about the same as placing a bet with a book maker.

If the day comes where bookies let people place bets after the post and win 500 times their punt on a 2 dog race I'll throw this damn computer out the window and head to the track, but for now I'll stick to trading breakouts