Trading CFDs

[markrmau]

Re: Trading CFD's

Do you mean that if you shorted at $8.10, you would get approx 3.5% ?

Yes. You would sell at $8.10, receive interest on the amount (ONCR-approx 2.5%) and buy them back now at $7.85 (covering your short).

I don't understand what you mean by shorting at $7.85 at this point in time.
Or am I missing something?

Edit. Yes I am missing something. Why the hell are they now $7.83. Wont bhp compulsorarily acquire at $7.85?

 

[stockman]

Re: Trading CFD's

When you go short you get paid 3.5% p.a. When you go long you pay 7.5%.

 

[markrmau]

Re: Trading CFD's

Oh, I see. You could have 'borrowed' a large amount of shares, putting up only say 10-20% of the capital (because of the leverage) and get 3.5% interest on the lot. Comparable to say >20%p.a. on your initial input.

Nice.

Don't forget that when your cfd provider had to return the shares, the short would have been closed out.

 

[rozella]

Re: Trading CFD's

G'day Smurf1976,

I found this on the ATO site, but it is only a draft ruling.

CFD Draft Taxation Ruling

 

[markrmau]

Re: Trading CFD's

Can someone please explain if you went short WMR shares at $7.85 a month ago you would have got paid 3.5% right.

Now it is going to be suspended on the 24 th of June as BHP are taking them over at a price of $7.85. Do you get the price of $7.85, or do you lose your capital???

Thanks

From marketech PDS.

"Marketech may also elect to close a CFD, where the underlying shares are the subject of a take-over offer, prior to the closing date of the offer. CFDs do not entitle you to any voting rights in connection with the underlying instrument or security such as shares."

Marketech seems to have a competitive product. In my research of cfd's I have found there is a bloody lot of fine print to absorb. Caveat emptor indeed.

 

[wombat40]

Re: Trading CFD's

with cmc they dont hav a stoploss facility on the software......hav to put on a sell order to have stoploss...does any one have the same experience..i have been using it to trade but have not used stoploss yet.....i have a different setup...

mark

 

[mit]

Re: Trading CFD's

Want to add one more thing to Rozellas excellent discussion on CFDs is that people should be aware that they are paying interest on the entire position. With a margin loan if you have a LVR of 50% you only pay interest on 50%. If the share goes up 10% you still only pay the interest on the original amount.

With CFDs (at least with CMC) you pay interest on the lot. If your share goes up 10% you pay interest on that 10% as well.

The best things about CMC however is that if you start with small amount of capital, if you are systematic and careful you can quickly build up your stake.

However, to me, once you build up your capital to a reasonable amount, for my style of trading (5-10 stocks held for a couple of weeks) I would personally use margin lending. I still use CMC for their forex, shorting, playing with the Aussie200 and my occassional desire to do a quick daytrade.

MIT

 

[bonkers]

Re: Trading CFD's-The Trend is your Friend

Hi The Trend is your Friend--would you have the web address of the CFD online calculator?---have looked but haven't been able to find it--looks like a handy tool to have.
Regards, BK.

 

[Kauri]

Re: Trading CFD's

Mmmmmm...a LITTLE annoying :swear: ...I.G having trouble with their platform...down for 30 mins so far today... yesterday was patchy too.. adds a bit of excitement to a trade Hope the phone holds up!!!

 

[robots]

Re: Trading CFD's

hello,

I find from information read, CFD's to be a contract purely with the CFD organisation, and as such a very complicated bet.

You never own or will own the underlying stock.

As far as betting is concerned, far easier to use IG Index , where you can buy/sell most ASX200 stocks by betting for example $10.00 per point.

I did have trouble getting my money out of one these organisations. Not a large sum but after around 8mths of "betting" I was up several thousand dollars.

Made around 5 phone calls to organisation, and after 2 weeks finally got my money.

The majority of these organisations are betting houses, that promote/advertise in the financial press.

regards
robots

 

[Kauri]

Re: Trading CFD's

hello,

I find from information read, CFD's to be a contract purely with the CFD organisation, and as such a very complicated bet.

You never own or will own the underlying stock.

As far as betting is concerned, far easier to use IG Index , where you can buy/sell most ASX200 stocks by betting for example $10.00 per point.

I did have trouble getting my money out of one these organisations. Not a large sum but after around 8mths of "betting" I was up several thousand dollars.

Made around 5 phone calls to organisation, and after 2 weeks finally got my money.

The majority of these organisations are betting houses, that promote/advertise in the financial press.

regards
robots

Most Cfd companys now also offer DMA which does away with the bet angle, spreads, etc and instead gives you commissions and interest charges/credits. Very similar to margin lending.

 

[Smurf1976]

Re: Trading CFD's

The majority of these organisations are betting houses, that promote/advertise in the financial press.

In the UK they simply call it "spread betting" and there's no tax on profits (so I'm told) because the government views it as gambling "and most gamblers lose".

 

[finnsk]

Re: Trading CFD's

Hi guys

I dont understand why you call it for betting, as far as I am concerned if you buy 1000 shares in BHP from fx comsec to a value of $20/share and it goes up to $21/share you make $1000 profit, if it goes down to $19/ share you have a $1000 loss.

If you buy 1000 CFDs/shares of BHP from fx macquarie bank at a value of $20/share or 5% = $1 and the scenario is the same up or down you will either have a gain or loss of a $1000.

Difference is the outlay of money $20000 contra $1000.

Where is the betting in that?

 

[wayneL]

Re: Trading CFD's

Hi guys

I dont understand why you call it for betting, as far as I am concerned if you buy 1000 shares in BHP from fx comsec to a value of $20/share and it goes up to $21/share you make $1000 profit, if it goes down to $19/ share you have a $1000 loss.

If you buy 1000 CFDs/shares of BHP from fx macquarie bank at a value of $20/share or 5% = $1 and the scenario is the same up or down you will either have a gain or loss of a $1000.

Difference is the outlay of money $20000 contra $1000.

Where is the betting in that?

The "spread betting" houses and the UK government know most traders come to the market with casino mentality.

It's why 95% of traders lose.

 

[Smurf1976]

Re: Trading CFD's

Hi guys

I dont understand why you call it for betting, as far as I am concerned if you buy 1000 shares in BHP from fx comsec to a value of $20/share and it goes up to $21/share you make $1000 profit, if it goes down to $19/ share you have a $1000 loss.

If you buy 1000 CFDs/shares of BHP from fx macquarie bank at a value of $20/share or 5% = $1 and the scenario is the same up or down you will either have a gain or loss of a $1000.

Difference is the outlay of money $20000 contra $1000.

Where is the betting in that?

The thing is that most people using a spread betting account would use the leverage to increase exposure to the market rather than reduce the capital required.

That's gambling in my opinion. It is the exposure to high leverage which enables the massive losses in very short time. Even a 2% loss becomes 40% of your capital gone when it's leveraged 20:1. Spread betting companies know this and operate like a casino - take the losses of their customers plus the spread and just pay the few winners out of their profits. If you start winning too much then they wouldn't be too happy about it - presumably that's why withdrawals require human contact whereas everything else is online. Mustn't have too many winners or, just like a casino, the spread betting company would go broke so they do need to keep a check on anywone making withdrawals from their account.

Having once had a spread betting account I won't be going there again. Just far too many tricks in my opinion. Things like the All Ords plunging hundreds of points in the middle of the night to knock your stops out and then bouncing straight back again in a matter of seconds when there was no comparable movement in any major stock market that was open at the time. Not providing price data in a useable format (eg. charts with constantly changing scale and no ability to zoom out to longer than an hourly timeframe thus making T/A extraordinarily difficult). And of course they won't give you the raw data and getting the data from elsewhere is useless since the spread betting index moves independently of the underlying market.

It would be like owning an oil stock but using a chart of the crude oil price to set your stops for the stock you hold. The stop will have to be pretty wide to avoid constant false triggering and with the high leverage that's likely to lead to massive losses. There are easier ways to trade.

If a CFD position is hedged in the underlying market and the leverage is used sensibly then that would be different. There are some CFD providers which claim to do this. There is at least one that appears to link stock CFD's to the underlying market but runs the index as spread betting.

I'm yet to meet or even hear of anyone who makes a consistent profit spread betting. CFD's linked to the market yes, but not spread betting. No doubt there is someone who does, but they're in the same category as those who make consistent profits at the casino in my opinion. Unusual and likely to find problems being allowed to continue since they are literally taking money from the spread betting company's bottom line.

 

[robots]

Re: Trading CFD's

hello,

contract for difference, is exactly that, you have a contract to be responsible for the "difference" between the price you enter and the underlying stock price at the time of closing the position.

thanks
Robots

 

[Kauri]

Re: Trading CFD's

Not sure if I am 100% correct but this is how I understand CFD trading....
Some CFD companys still offer only the spread type contract where the cfd provider acts as market maker. Under this platform they set the buy/sell prices above/below the current market price, ie. in the NAB example quoted they may offer $21.30 to buy and $19.70 to sell, on the underlying market price of $20.00. It varies on their perception and exposure to the particular stock. However there is no commission payable, the spread is meant to cover this. The CFD provider may hedge part or all of the position in the market, or may accept the total risk and hold the position against your contract. A commonly quoted problem with this model is in some stocks the size of the spread, and also inexplicable delays in your order being filled, allowing the available spread being offered to move well beyond your buy/sell point (particularly with large positions). Ah,The joys of dealing with a Market Maker.. .
Some CFD platforms offer the DMA(direct market access) model ( Maquarie Bank, Man Financial, and IG Markets are three I can think of). In the DMA model the buy/sell is the current market price, and all contracts are fully hedged in the market. If you place your order for 1000 NAB you can see your order in the market depth, there is no spread, rather a %commission is charged, and interest is charged/credited daily on the total position.So in the DMA model the CFD provider makes their profit on commission and interest, not on wether the trade moves against you or not. Mind you there are a few little tricks eg. IG charge interest on the full value of the position at the end of each day (as opposed to the amount of credit), calculated daily. IG rates are currently RBA + 2.5%/360....yes for some reason they think there are only 360 days in the year!!!!! The amount of deposit required varies depending on the stock and the provider, typically it is between 5% and 20% I think. Guaranteed stop losses are offered by some providers at a premium on the commission, the % charged depends on their take of the stocks volatiliy.
When does gambling become investing?? When does an investment become a gamble?? To me the DMA model is no more or no less a gamble than other leveraged derivatives such as warrants, options, margin lending, or futures contracts. The gamlbe is in each individual traders pyschology, trade management, risk tolerance, discipline, and stock selection. The leverage just magnifies your success/failure.
Tha above is my opinion only, how do others see it?

 

[smrt-guy]

Re: Trading CFD's

I'm hoping someone hear can offer some insight. I've read the latest CMC PDS and can find no mention of a spread on aussie equity CFDs. I'm certain when I read it 8 months ago there was a mention of it. Can anyone tell me if there is a spread, and how you are able to tell what it is (usually) other than comparing it to etrade at the time of placing the order?

I've spoken to CMC and they inform me there is no spread, but I see many a complain on this forum about how they suddenly widen it.

I'm unfortunately having to move away from Marketech who had been a dream to deal with because of a change in their margin requirements.

 

[Narkov]

Re: Trading CFD's

I'm hoping someone hear can offer some insight. I've read the latest CMC PDS and can find no mention of a spread on aussie equity CFDs. I'm certain when I read it 8 months ago there was a mention of it. Can anyone tell me if there is a spread, and how you are able to tell what it is (usually) other than comparing it to etrade at the time of placing the order?

I've spoken to CMC and they inform me there is no spread, but I see many a complain on this forum about how they suddenly widen it.

I'm unfortunately having to move away from Marketech who had been a dream to deal with because of a change in their margin requirements.

There is no artificial spread on ASX shares other then the market spreads but IS a spread on Index CFD's. It's usually two points during market hours and 4 or more after hours.

 

[Porper]

Re: Trading CFD's

Not sure if I am 100% correct but this is how I understand CFD trading....
Some CFD companys still offer only the spread type contract where the cfd provider acts as market maker. Under this platform they set the buy/sell prices above/below the current market price, ie. in the NAB example quoted they may offer $21.30 to buy and $19.70 to sell, on the underlying market price of $20.00. It varies on their perception and exposure to the particular stock. However there is no commission payable, the spread is meant to cover this. The CFD provider may hedge part or all of the position in the market, or may accept the total risk and hold the position against your contract. A commonly quoted problem with this model is in some stocks the size of the spread, and also inexplicable delays in your order being filled, allowing the available spread being offered to move well beyond your buy/sell point (particularly with large positions). Ah,The joys of dealing with a Market Maker.. .
Some CFD platforms offer the DMA(direct market access) model ( Maquarie Bank, Man Financial, and IG Markets are three I can think of). In the DMA model the buy/sell is the current market price, and all contracts are fully hedged in the market. If you place your order for 1000 NAB you can see your order in the market depth, there is no spread, rather a %commission is charged, and interest is charged/credited daily on the total position.So in the DMA model the CFD provider makes their profit on commission and interest, not on wether the trade moves against you or not. Mind you there are a few little tricks eg. IG charge interest on the full value of the position at the end of each day (as opposed to the amount of credit), calculated daily. IG rates are currently RBA + 2.5%/360....yes for some reason they think there are only 360 days in the year!!!!! The amount of deposit required varies depending on the stock and the provider, typically it is between 5% and 20% I think. Guaranteed stop losses are offered by some providers at a premium on the commission, the % charged depends on their take of the stocks volatiliy.
When does gambling become investing?? When does an investment become a gamble?? To me the DMA model is no more or no less a gamble than other leveraged derivatives such as warrants, options, margin lending, or futures contracts. The gamlbe is in each individual traders pyschology, trade management, risk tolerance, discipline, and stock selection. The leverage just magnifies your success/failure.
Tha above is my opinion only, how do others see it?

I have just signed up with IG Markets (today).

After a few phone calls the facts are that each CFD is traded at the ASX market price, so they cannot just widen the spread to stop people out like has been mentioned.They are also hedged against losses and match orders up, eg, if you win another person loses type scenario.

The guy I spoke to also called it "betting" which scares me straight away as in my eyes there is little difference in the process to normal share trading.

As for the risk, you definately need strict position sizing and just because your, let's say $20,000 will buy you $200,000 worth of shares doesn't mean you have to, infact that would be suicidal in a financial sense.I don't see a problem with it yet, interest is the one obvious big negative.

The only reason I am doing it is it gives me the option to go short easily.

Out my comfort zone, but will give it a go. (with money I can afford to lose.)