Trading CFDs

[Magdoran]

Re: Trading CFD's

Sharing my experience:
I'm an ETO (options) trader on some of the ASX top 20 from 1 hour to 7 days max.

I traded cfds for the first time last month (with 2 providers) but got burnt sadly due to not paying enough attention to the COST of both cfd brokerages and 1% GSL !!! Those brokers sure make lots of money. Example: My last cfd trade on 4000 x ANZ cfds going long was supposed to profit $1300 but the GSL + brokerages (entry and exit) + interests totalled to more than $1000!!!! With costing like this, a few losses could have sent me broke in no time. Boy, do I need serious cfds education. If I were in options, the same trade would've cost me approx $100 in OCH and brokerages, with a nice profit of approx $800 (delta: 0.6+)

Anyway, I figured that Im not the one to leverage a cfd trade without GSL and so I went back to ETO. I feel very at home now.

If anyone has any suggestions, please feel free to comment.

Hello dewdrop,


Your experience certainly resonates with my estimation. Have a look at my comment in “The idiots way to options riches” for a more detailed appraisal. Your comment adds to the list of liabilities on the CFD ledger, doesn’t it?


Regards,


Magdoran

 

[Bobby]

Re: Trading CFD's

Hello Dewdrop,

Please let us know who are these two providers ?
I 'd like to look into this !

Cheers
Bob.

 

[dewdrop]

Re: Trading CFD's

Hi everyone,

It is not my intention to discredit those providers since the whole experience was my decision. (besides, I have agreed to sign those agreement papers before I start trading with them, right?) The point was, I should have understood the instrument and the broker’s fees better (applying money and risk management) prior to entering the trade.

My first provider was a very popular one (that advertises aggressively - usually on a glossy page advertisement at the back of a trading magazine) It permits 5% GSL level minimum. Then I opted for another provider (one of the richest bank around – take a guess) that allows for much tighter GSL (1% minimum) and free trailing cost. The 1% GSL alone on the ANZ trade mentioned was $559. The wider the GSL the cheaper it gets.

For a medium to long term trading strategy (min 3 month run) – provided the stock goes your way during the period, the 1% GSL level would’ve been fantastic. But let’s face it, the market has been uptrending strongly since 2004. During the period of high volatility (e.g 1999 to 2001), it may be very tough to expect consistent 3 month runs. But then again, one could change their trading style and instrument to suit the market.
Nevertheless, I am one who likes to go on a break without having any open position and hence drawn to the “swing” style of trading.

Just couldn’t believe my own stupidity. Oh well.

 

[Bobby]

Re: Trading CFD's

Hi everyone,

It is not my intention to discredit those providers since the whole experience was my decision. (besides, I have agreed to sign those agreement papers before I start trading with them, right?) The point was, I should have understood the instrument and the broker’s fees better (applying money and risk management) prior to entering the trade.

My first provider was a very popular one (that advertises aggressively - usually on a glossy page advertisement at the back of a trading magazine) It permits 5% GSL level minimum. Then I opted for another provider (one of the richest bank around – take a guess) that allows for much tighter GSL (1% minimum) and free trailing cost. The 1% GSL alone on the ANZ trade mentioned was $559. The wider the GSL the cheaper it gets.

For a medium to long term trading strategy (min 3 month run) – provided the stock goes your way during the period, the 1% GSL level would’ve been fantastic. But let’s face it, the market has been uptrending strongly since 2004. During the period of high volatility (e.g 1999 to 2001), it may be very tough to expect consistent 3 month runs. But then again, one could change their trading style and instrument to suit the market.
Nevertheless, I am one who likes to go on a break without having any open position and hence drawn to the “swing” style of trading.

Just couldn’t believe my own stupidity. Oh well.

Thanks for the info` Dewdrop !
I now know exactly who they are now.

Cheers
Bob.

 

[barney]

Re: Trading CFD's

Hi guys, I posted this Question in another CFD thread, but no reply as yet so I thought I'd put it here

Anyone else noticed their CFD provider sometimes has "buy only" status on particular stocks (ie you cant sell them if you own them) and sometimes for "days" on end...............is this normal practice?..........why would this be?? Barney

 

[coyotte]

Re: Trading CFD's

Hi guys, I posted this Question in another CFD thread, but no reply as yet so I thought I'd put it here

Anyone else noticed their CFD provider sometimes has "buy only" status on particular stocks (ie you cant sell them if you own them) and sometimes for "days" on end...............is this normal practice?..........why would this be?? Barney

Are U sure your got that right ?

Think U will find it means U can't SHORT them !

Cheers

 

[barney]

Re: Trading CFD's

Are U sure your got that right ?

Think U will find it means U can't SHORT them !

Cheers

Yeah sorry Coyotte....I was talking then wrong language.............Thats right you can only "go long" on the stock.............you cant "short it".....why would that be?

PS If you were long on the stock, would you still be able to close the position out with a stop loss/limit order, even though there is no "short" available?? Thanks Barney

 

[coyotte]

Re: Trading CFD's

Barney :

Shorts are regulated by ASX , the Stock must have a min Capalisation and only a certain percentage of it's shares can be Shorted :

The current list is advaible on the ASX web site .

Suppose the CFD providers would be protecting themselves against big players ,hence they would be following the ASX rules up to a point.

Of course you can place a STOP on any order --- thats not going SHORT


Cheers

 

[MichaelD]

Re: Trading CFD's

Shorts are regulated by ASX , the Stock must have a min Capalisation and only a certain percentage of it's shares can be Shorted :

True, but this is not relevant to CFD providers who, even when matching the underlying quoted spread, are still acting as market makers (i.e. they don't have to hedge in the underlying market - and indeed most of the time do not, contrary to popular belief).

I'd suggest that LONG ONLY for a CFD provider would relate to the risk exposure they have to shorts already in a given position. i.e. they don't want to take any more short bets.

 

[barney]

Re: Trading CFD's

True, but this is not relevant to CFD providers who, even when matching the underlying quoted spread, are still acting as market makers (i.e. they don't have to hedge in the underlying market - and indeed most of the time do not, contrary to popular belief).

I'd suggest that LONG ONLY for a CFD provider would relate to the risk exposure they have to shorts already in a given position. i.e. they don't want to take any more short bets.

Thanks Coyotte and Michael for the input.

Can I ask, if the CFD provider is "concerned" about taking on more "short" positions, does this indicate that they percieve the sp of this stock may drop more, or rise more?...or is this totally irrelevant, cause they are simply dealing with numbers/mathematics/making a profit..........just can't quite get my head around this atm...............all i can figure is, that if a CFD provider will only short/long a stock, could that possibly be an indicator of some importance re the future movement of the stock?? Thanks Barney.

 

[robots]

Re: Trading CFD's

hello,

dont look too much into what a cfd provider does or doesnt do

you are at their mecry, it is a contract with them and as such they are setting the rules

if you want to short or go long then go for it, just understand their rules

I like the spread betting IG Index

thankyou
robots

 

[MichaelD]

Re: Trading CFD's

all i can figure is, that if a CFD provider will only short/long a stock, could that possibly be an indicator of some importance re the future movement of the stock?? Thanks Barney.

Nobody, anywhere, ever can predict what a stock will do tomorrow with anything more than a random chance of being right or wrong. A coin toss, a dart throw and a monkey are just as profitable as the highest paid analysts, if not more so.

The sooner you accept this as true the sooner you are able to come to terms with the consequences of this for trading and the sooner you will become consistently profitable.

Exits make the money, not entries. You will not find (much of) an edge exploring entry strategies. You are FAR FAR better off choosing an exit method that suits your trading style and instrument and applying that consistently.

 

[barney]

Re: Trading CFD's

Nobody, anywhere, ever can predict what a stock will do tomorrow with anything more than a random chance of being right or wrong.

The sooner you accept this as true the sooner you are able to come to terms with the consequences of this for trading and the sooner you will become consistently profitable.

Appreciate that Michael, just trying to understand why my cfd provider will only "long sell" a particular stock............If they won't "short sell" it, does that indicate that they have a "vested" interest in the stock, or have their "clients" put so many stop losses/guaranteed stop losses on their previous "long" orders, that are not prepared to take "short" orders because they can't "guarantee" the price???........Just a bit confused as to why they need to do this??...........(I thought CFD providers simply made their profits by "benefiting " from the "difference"/ ie They cannot lose, regardless of the sp ..........as I say, Can't quite work out why some stocks can't be "shorted" while most others can????..............Can you explain further????

 

[MichaelD]

Re: Trading CFD's

just trying to understand why my cfd provider will only "long sell" a particular stock............If they won't "short sell" it, does that indicate that they have a "vested" interest in the stock, or have their "clients" put so many stop losses/guaranteed stop losses on their previous "long" orders, that are not prepared to take "short" orders because they can't "guarantee" the price???

CFD providers are bookies. If enough people bet on a given horse, then a bookie will expose themselves to the risk of a lot of people being right - to a risk of losing a significant amount of money.

How does a bookie handle this? They change the rules (i.e. odds).

Apply the above to a CFD provider;

I'd suggest to you that the reason a CFD provider will not take a short sell order on a given position is if a significant number of their clients already have short positions in that stock in comparison to long positions.

They don't want to take the risk of too many people being right so they simply won't take your bet.

NOTE: I have no special knowledge of CFD providers other than what I have been able to discern from comparing action on my CFD provider's screens with concurrent underlying market (in)action and from info I have gleaned from very rare posts from what appear to be true insiders. For all I know, I could be completely wrong.

 

[barney]

Re: Trading CFD's

CFD providers are bookies. If enough people bet on a given horse, then a bookie will expose themselves to the risk of a lot of people being right - to a risk of losing a significant amount of money.

How does a bookie handle this? They change the rules (i.e. odds).

Apply the above to a CFD provider;

I'd suggest to you that the reason a CFD provider will not take a short sell order on a given position is if a significant number of their clients already have short positions in that stock in comparison to long positions.

They don't want to take the risk of too many people being right so they simply won't take your bet.

Hi again Michael, I might have this all wrong, but I was under the impression that CFD providers were more like "margin loan" operators as opposed to "bookies"...........They profit regardless of whether the "punter" is right or wrong??...........If lots of people "short" a stock, and the price does go down, they don't lose money, any more than if the stock went up, do they? They simply buy or sell the stock on our behalf, and charge interest a couple of % above the going reserve rate, on settlement..............I'm guessing that you are right re the "significant number of clients" short selling, and what this may be doing is making the "on screen sell/short order" an unrealistic price for them to "match/guarantee" due to the number of current orders already "below" that price...................Just for the point of the exercise, I am talking about PDN, which over the last couple of days would not seem to have been a stock to be "shorted" to any great degree...............appreciate your input, still slightly unsure though.....Cheers Barney.




Thats kind of what I was guessing...............still seems a little odd considering a CFD provider makes money whether the "punter" is right or wrong (they still collect their "interest" on the margin/leverage they have loaned the money out at, whether the price goes up or down

 

[MichaelD]

Re: Trading CFD's

They simply buy or sell the stock on our behalf

They do not buy or sell the underlying as a general rule. Why would they themselves place losing bets in the physical market, since the majority of punters and bets are nett losers? Much more profitable to simply let us lose our money hand over fist to them.

On top of that, they skim their % interest off the entire position size, including our money, not just the margin %.

They want you to think they buy and sell on your behalf in the physical market so you remain deluded that they are brokers and not bookies.

 

[barney]

Re: Trading CFD's

They do not buy or sell the underlying as a general rule. Why would they themselves place losing bets in the physical market, since the majority of punters and bets are nett losers? Much more profitable to simply let us lose our money hand over fist to them.

On top of that, they skim their % interest off the entire position size, including our money, not just the margin %.

They want you to think they buy and sell on your behalf in the physical market so you remain deluded that they are brokers and not bookies.

Thanks again Michael,
I'm with you now......This adds a whole new risk to CFD's I wasn't aware of....no wonder people have been warning me to be careful trading with them.........thanks for the explanantion..All the best, Barney

 

[mikeg]

Re: Trading CFD's

Originally Posted by dewdrop
Sharing my experience:
I'm an ETO (options) trader on some of the ASX top 20 from 1 hour to 7 days max.

I traded cfds for the first time last month (with 2 providers) but got burnt sadly due to not paying enough attention to the COST of both cfd brokerages and 1% GSL !!! Those brokers sure make lots of money. Example: My last cfd trade on 4000 x ANZ cfds going long was supposed to profit $1300 but the GSL + brokerages (entry and exit) + interests totalled to more than $1000!!!! With costing like this, a few losses could have sent me broke in no time. Boy, do I need serious cfds education. If I were in options, the same trade would've cost me approx $100 in OCH and brokerages, with a nice profit of approx $800 (delta: 0.6+)

Anyway, I figured that Im not the one to leverage a cfd trade without GSL and so I went back to ETO. I feel very at home now.

If anyone has any suggestions, please feel free to comment

.

Dewdrop, just wondering why you thought you needed to use a GSL. If you did not use one then your profit would have been the same as if you had used an Option. By using a CFD you also have the advantage of no time decay, but will have to pay interest on the position.

 

[Bobby]

Re: Trading CFD's

Nobody, anywhere, ever can predict what a stock will do tomorrow with anything more than a random chance of being right or wrong. A coin toss, a dart throw and a monkey are just as profitable as the highest paid analysts, if not more so.

The sooner you accept this as true the sooner you are able to come to terms with the consequences of this for trading and the sooner you will become consistently profitable.

Exits make the money, not entries. You will not find (much of) an edge exploring entry strategies. You are FAR FAR better off choosing an exit method that suits your trading style and instrument and applying that consistently.

I will back you up on this Micheal, as you said No-one can
call it right more then 50/50 .

Bob.

 

[Magdoran]

Re: Trading CFD's

.

Dewdrop, just wondering why you thought you needed to use a GSL. If you did not use one then your profit would have been the same as if you had used an Option. By using a CFD you also have the advantage of no time decay, but will have to pay interest on the position.

Hello mikeg,


Have a look at my comment in “The idiots way to options riches” post 12 for more detail comparing CFDs to options, and why using a GSL when using CFDs is worth considering.


Regards


Magdoran