The Dangers of CFDs

[dovetree]

Trembling Hand, Hi I did say regulated futures markets (like the CME) I don't trade the SFE that much because whilst giving the impression its regulated its really no better than other asian markets (casinos).

Currency futures on the CME are what you see what you get whether your a bank or an individual... the quotes are the same unlike forex, and unlike CFD's which have less regulation than the SFE.
Having worked on the CME floor, I would not touch CFD's or the forex.

 

[Timmy]

Having worked on the CME floor, I would not touch CFD's or the forex.

Dovetree - would love to hear your comments on the CME, in another thread if you would like to start one and leave this one for CFDs of course.

Always very interesting getting an "insider's" perspective. When were you there, your perspective on the electronic matching markets, different execution methods and technologies you have encountered, anything you care to expand on really..? Be very interesting to me and I have no doubt others too.

 

[Boggo]

I have posted this on another forum too as I believe it is a valuable discussion on forex.

This is on the MTPredictor forum site but the discussion has nothing to do with their software.

http://www.mtptrader.com/showthread.php?t=1363

 

[dovetree]

Good article and quite accurate. Boggo.

Those people estolling the vitues of forex trading (and cfd's) for the small retail trader should look at this article and investigate what actually happens a bit further.

 

[Trembling Hand]

I have posted this on another forum too as I believe it is a valuable discussion on forex.

This is on the MTPredictor forum site but the discussion has nothing to do with their software.

http://www.mtptrader.com/showthread.php?t=1363

Good to see someone spreading the news about their evil ways!

The "Brokarge free" stuff that CFD Market Makers hype as well as Forex really gets me
The newbie never knows how much that is really costing them. That spread and always Buying/Selling at market cost you at least double if not much more than any brokerage on futures.

No such thing as a Free .........

 

[amy997]

I don't really see the problem with cfd's if you know how to use them. I have been using index cfds fulltime for a year and am still going. I treat them exactly as if they were a futures contract. I have 10,000 in my account and only ever purchase one contract at a time. I do have a very strict trading plan based on probabilities that only allows me to trade within certain bands and in certain directions depending on the market and so far my cfd account has survived the volatility.
I think if you respect the leverage they allow then you will be ok.

I know you pay the extra point in spread and TH I have read your "cfds not free" article on your blog and agree with your point but for the time being while i am still learning i find cfds to be entirely satisfactory.

 

[Wysiwyg]

I was going to lie down but have decided to add my negative experience of the cash for difference system.

Some of the traps that snared me (and i`m sure others will think they can beat them )

1)making up the spread difference
2)stop losses are tripped no matter where they are set
3)sharp direction changes (probably the biggest killer)
4)trailing stops are tripped (no. 3) and then moves back on trend
5)if they let you make a profit expect to have some removed (wittled see 2. or lump sum )
6)carrying a trade into the next session can lead to a severe loss on reopen
7)long (time wise) holds not recommended(see 6)

It is controlled, manipulated and if they want then every trade you will make a loss or have your profits minimalised (see 3 & 4)I`m glad i won`t be finding the other snares that i missed.

It`s their game, your money and the old saying .... it`s too good to be true rings loud and clear now.

 

[Aviator33]

Hi Wysiwyg

All of the probs you mention are very valid for MMs. Obviously sudden direction changes can even happen on the underlying but none of the other points really exist with DMAs except:

6)carrying a trade into the next session can lead to a severe loss on reopen

...and that same rule applies to any instrument you are carrying overnight. Not trying to start an arguement here, just don't like it when DMA CFDs get lumped in with MMs. Apologise in advance if this was not your intention

Cheers
AV

 

[Wysiwyg]

Hi Wysiwyg

All of the probs you mention are very valid for MMs. Obviously sudden direction changes can even happen on the underlying but none of the other points really exist with DMAs except:
...and that same rule applies to any instrument you are carrying overnight. Not trying to start an arguement here, just don't like it when DMA CFDs get lumped in with MMs. Apologise in advance if this was not your intention

Cheers
AV

Hello aviator 33, no argument from me too.So are you saying that stops/limits get "taken out" on purpose if this doesnt happen on a direct market access trading platform??

It angered me greatly to have my stops/limits get taken out consistently and then move back in the money soon afterwards.This coupled with my inexperience trading indices, commodities & foreign exchange rates was a bad mixture. Trading shares with CFD might be a better alternative as the volatility is generally within acceptable limits and control.I won`t be going back in a hurry if ever.Very suss.

 

[Trembling Hand]

It angered me greatly to have my stops/limits get taken out consistently and then move back in the money soon afterwards.This coupled with my inexperience trading indices, commodities & foreign exchange rates was a bad mixture. Trading shares with CFD might be a better alternative as the volatility is generally within acceptable limits and control.I won`t be going back in a hurry if ever.Very suss.

Are you saying that the MM are moving the quotes away from the underlying cash market?? I have never seen that in spite of it being claimed many a time. Give us an example and I will compare it to the futures.

 

[Wysiwyg]

Are you saying that the MM are moving the quotes away from the underlying cash market?? I have never seen that in spite of it being claimed many a time. Give us an example and I will compare it to the futures.

No, i checked the 1 second tick chart and they were legitamately hit, (they only have to touch the stop and not through it to trigger) some for a brief moment and others completely through.The cash markets they offer are not point for point with the indices so i really don`t know how you could compare them anyway.I hope i save some other poor bastad but unless you play live it is difficult to fully comprehend the gist of what this thread is about.

 

[CFD]

CFDs' are an instrument for trading shares (or indexs etc). What you are frustrated with is your trading in the prevailing market conditions. For the most part your problem is not with CFDs themselves, as the same thing would have happened if you had traded the shares direct.

 

[Aviator33]

.So are you saying that stops/limits get "taken out" on purpose if this doesnt happen on a direct market access trading platform??

Well, obviously it can happen that other traders take out your stops in the market but that is always a risk. What I am saying is that a DMA CFD provider does not take out your stops and cannot take them out anymore than any other trader can take them out as you're trading in the underlying market, not the pseudo market created by a MM. With a MM, they can adjust the prices they are offering and take out your stops damn easy - it's their market!

Having said all of this, I've never seen any evidence that an MM has done this but have heard so many horror stories. Yours is another one to add to the list.

 

[robots]

hello,

CFD=Contracts for difference

these things are nothing more than "a deal" between you and the provider,

you get no rights or ever own the "underlying" whether you are with DMA or MM, its all smoke and mirrors

they want to fleece your whole account say goodbye and then enlist another sucker with glossy brochures, advertising etc

I traded the spi with spread bet when IG were offering, had to have huge stop loss to maintain position, then went to spi with futures broker (tricom)

cleared out and found far easier ways of making money

thankyou

robots

 

[Wysiwyg]

CFDs' are an instrument for trading shares (or indexs etc). What you are frustrated with is your trading in the prevailing market conditions. For the most part your problem is not with CFDs themselves, as the same thing would have happened if you had traded the shares direct.

Yeah for sure the volatility is there combined with the spreads plus the stop distance really do eat into the capital.No spread on shares direct though so the loss to stop would be less.I also held 4 contracts over night that opened 140 points away.That was my lack of experience and as it turned out all the tricks in the bookies bag did me in.I know better now.
It`s all good once you know how the game is played hey.

 

[Wysiwyg]

What I am saying is that a DMA CFD provider does not take out your stops and cannot take them out anymore than any other trader can take them out as you're trading in the underlying market, not the pseudo market created by a MM. With a MM, they can adjust the prices they are offering and take out your stops damn easy - it's their market!

Can you tell me of a DMA sevice with a good rep. by private mail if you don`t want to say here please aviator33.

 

[Trembling Hand]

The cash markets they offer are not point for point with the indices so i really don`t know how you could compare them anyway.

Completely incorrect. They are ALL linked to the futures market. This I know as a FACT. CMC for example will link their Aussie200 to the SPI Bid price and add 2 for the Ask price. Have a look at the times the CMC Aussie200 trades, its EXACTLY the same as the SPI. You got taken out by the SPi traders not the MM.

 

[Trembling Hand]

With a MM, they can adjust the prices they are offering and take out your stops damn easy - it's their market!

Having said all of this, I've never seen any evidence that an MM has done this but have heard so many horror stories. Yours is another one to add to the list.

Yes Aviator many have said this has happened but they never give any evidence. If someone would just post a chart or a price, which wouldn't be that hard, we could see it. But they never do.

Don't get me wrong I'm against the MM but they don't have to adjust their prices to blow up traders just give them huge leverage and they do it themselves.

 

[Wysiwyg]

Completely incorrect. They are ALL linked to the futures market. This I know as a FACT. CMC for example will link their Aussie200 to the SPI Bid price and add 2 for the Ask price. Have a look at the times the CMC Aussie200 trades, its EXACTLY the same as the SPI. You got taken out by the SPi traders not the MM.

Sorry mate, the Wall Street Cash (in the provider i was with) varied 50 points + or - different.

 

[Trembling Hand]

Sorry mate, the Wall Street Cash (in the provider i was with) varied 50 points + or - different.

What does this mean? Show us a chart. PLEASE