new to CFDs

[jonboy123]

hi
ive been using online execution brokers for trading UK stocks.

I can do this with a normal CFD account cant i?
If i have a CFD account, can i use it like a normal trading account?
eg...not just pay the margin, but actually make the full payment when buying shares.

And then CFD would also allow me to go short, when i want to.
And CFD will allow me leverage/gearing.

cheers.

So people use CFDs for going long and going short? I hear its the only way i can go short here in uk.

 

[new_trader]

hi
ive been using online execution brokers for trading UK stocks.

I can do this with a normal CFD account cant i?
If i have a CFD account, can i use it like a normal trading account?
eg...not just pay the margin, but actually make the full payment when buying shares.

And then CFD would also allow me to go short, when i want to.
And CFD will allow me leverage/gearing.

cheers.

So people use CFDs for going long and going short? I hear its the only way i can go short here in uk.

jonboy123

1) A CFD is a DERIVATIVE, you do not own shares in the companies you take contracts on.

2) A CFD can be a leveraged product and they are called Contract For Difference because they are exactly what they say on the tin. You make (or lose) money on the DIFFERENCE in the price you open your contract and the value of the underlying asset.

eg/ If you went long on company XYZ shares with a CFD@£1.00 then you will make money for every penny XYZ shares move above £1.00 ie/ The difference. Conversely you will lose the difference for every penny they fall below £1.00

3) You can go LONG or SHORT at any time markets are trading unless there is a Short selling ban in place like earlier this year on financials.

4) CFD's do not expire.

5) If you go long, you pay interest on the CFD but you earn dividend payments.

6) If you go short you earn interest but pay out dividend costs.

You ought not be trading jonboy123, I think you will get slaughtered. All this is RUDIMENTARY stuff explained all over the internet if you bothered to look. The questions you are asking are the equivalent of someone who expects to be a pilot tomorrow asking "What is a cockpit? Do all aeroplanes have a cockpit? Do you need a cockpit to fly? What are wings? How many wings does a plane need? Is one enough? In another thread you asked to have your questions answered as if you were a child. I'm starting to think you are a child and that you should stick to playing your XBOX 360 because the market is no place for someone like you jonboy123. I am saying this in order to protect you from yourself.

 

[jonboy123]

jonboy123

1) A CFD is a DERIVATIVE, you do not own shares in the companies you take contracts on.

2) A CFD can be a leveraged product and they are called Contract For Difference because they are exactly what they say on the tin. You make (or lose) money on the DIFFERENCE in the price you open your contract and the value of the underlying asset.

eg/ If you went long on company XYZ shares with a CFD@£1.00 then you will make money for every penny XYZ shares move above £1.00 ie/ The difference. Conversely you will lose the difference for every penny they fall below £1.00

3) You can go LONG or SHORT at any time markets are trading unless there is a Short selling ban in place like earlier this year on financials.

4) CFD's do not expire.

5) If you go long, you pay interest on the CFD but you earn dividend payments.

6) If you go short you earn interest but pay out dividend costs.

You ought not be trading jonboy123, I think you will get slaughtered. All this is RUDIMENTARY stuff explained all over the internet if you bothered to look. The questions you are asking are the equivalent of someone who expects to be a pilot tomorrow asking "What is a cockpit? Do all aeroplanes have a cockpit? Do you need a cockpit to fly? What are wings? How many wings does a plane need? Is one enough? In another thread you asked to have your questions answered as if you were a child. I'm starting to think you are a child and that you should stick to playing your XBOX 360 because the market is no place for someone like you jonboy123. I am saying this in order to protect you from yourself.

thankyou.
i know most of what you said.
i was told cfds expire every quarter.
so going long on a cfd with shares.......is the same thing as buying shares the normal way....right? essentially the same thing..... you benefit from price rise....
Are there any disadvantages of going long on a CFD rather than buying shares the traditional way?

pay out dividend costs?

i have been trading already. small account, but have profited more than lost. Im new, yes. but that is not reason to not do this. i ask basic questions because i like to simplify thing. i dont play consoles or games. So what if i get slaugtered in the markets one day, i will learn from and move on..... its all good.....

cheers.

 

[new_trader]

thankyou.
i know most of what you said.
i was told cfds expire every quarter.
so going long on a cfd with shares.......is the same thing as buying shares the normal way....right? essentially the same thing..... you benefit from price rise....
Are there any disadvantages of going long on a CFD rather than buying shares the traditional way?

pay out dividend costs?

i have been trading already. small account, but have profited more than lost. Im new, yes. but that is not reason to not do this. i ask basic questions because i like to simplify thing. i dont play consoles or games. So what if i get slaugtered in the markets one day, i will learn from and move on..... its all good.....

cheers.

A CFD should never expire because you are paying an 'interest' charge in one way or another. There is no premium like in a futures contract which does expire.

Think of the real world, if you have £5000 in a savings account and you own no shares at all what is the result? You earn interest on your £5000 in the savings account but you have lost the benefit of dividend income from the shares. Going SHORT with a CFD is the equivalent to this. ie/ You sell shares and put the money into a savings account. Even though no shares are exchanged and money doesn't go into a savings account a CFD is more or less the equivalent of doing this and mimics (interest rates vary) the result. If you go SHORT with a CFD you earn interest but lose dividend income (it is deducted).


Now, in the real world, if you were to withdraw the £5000 and use it to buy shares what is the result? You lose the income from savings account interest but you gain the income from dividends on the shares. Going LONG with a CFD is the equivalent to this but you pay out interest (which is the same as having lost it) and earn income from dividends (it is deducted).

So, yes, a CFD is almost exactly like buying and selling the underlying shares but you do not get any voting rights or company reports. Also, the interest charges are different to savings accounts because it is normally LIBOR + X%. So it might cost more in the long term to be LONG shares via a CFD than it would if you bought the underlying asset. But if you are a short term-trader this may make little difference.

I encourage you to do your own research though as I have only traded INDEX CFD's but the principle is identical.

 

[Unicorn77]

cfd shares don't expire every quarter, certain trades do (energies, house prices, basically future trades)

I think your entitled to share divis, as for the interest, although it costs to hold shares, the fact you only need to put down from 10% can easily make this up, if your short, you need to pay the interest and any divis

 

[jonboy123]

ok people..thanks.
(yeah hoodless geezah told me CFDs are quarterly time limits..)
new_trader = well put, thanks. .. this is slightly complex.
going long on CFD, you pay out interest?
I was thinking of CFD trading just to short sell, with leverage, and possibly going long to test it out. i dont care much for dividends and interest....well, i dont know enough to... making the trades is best way to learn.
going long on CFD, you pay interest?

might jut try a short sell first.(quick one) One step at a time.
so CFD's generally a short term trades? do you CFD traders keep the time frame for the trade relatively small eg few days?

thanks.

"although it costs to hold shares" this the same point as above, about going long and paying interest?

yeah say if the margin is 10%, but you wanna settle the full payment up front, is this allowed? is that common, or its just usually a margin thing?

 

[Unicorn77]

you can hold a CFD as long as you want to.

the interest is libor, typically 2.5%, but currently lower, if you held ordinary shares, you would pay stamp duty, which is around half, so you wouldn't be at a loss interest wise if you held for upto 6 months, although i think libor is currently at 1.25%ish, i have around 25000 shares on cfd, and pay a few £ a day, if i used an ordinary shares account, i would manage around 12000 shares, the capability of earning twice as much is worth the interest charge for me

in the case of shorting, you get given interest, basically the outcome is the same, your still charged

on quarterly trades, you will be shown the start date (the time you can buy/sell) and the end date (the date you can buy/sell, or have your position closed automatically on the final day)

there is no way to trade without leverage on cfd's, the best you can do is buy the amount of shares that would equal what you want to invest in a normal account, and leave the rest as surplus

you can trade long or short term, i've got some shares open long term, but trade the FTSE/DOW daily

 

[jonboy123]

so going short = you earn interest.
going long = you pay interest

can you close the CFD at any time? in regards to a short....
eg have a 90 day limit...but end it before...when you see a profit.....

unicorn77, which CFD broker are you using? (if you dont mind me asking)
im not sure who to go with yet....selftrade/TDwaterhouse/IG markets....maybe one of the latter two.
Unicornn, are you putting STOPS on your shorts, in case the market goes against you?

can you suggest what kind of short trade i should do? as my first one...
i will use a little £ eg 300, to short....and buy to cover when a little profit is made....but put a stop loss on if it goes in opposite way....sound good? i would use a little bit of leverage....

 

[jonboy123]

so when going short...its best to AVOID DIVIDEND DATE?

 

[jonboy123]

ahh man this is complicated.
"If you go short you earn interest but pay out dividend costs. "

But you pay interest on the leveraged portion?
how much can you sell ?
say you wanna short sell £100 xyz shares....you pay £10 margin........dont you pay interest on the £900 levergae.......?

 

[jonboy123]

are there specific(important) things i need to check for , when deciding on a CFD online account?
im comparing brokers.

i guess commission rates, stop loss features, UK stocks CFDs, .......

selftrade give you £100, when you deposit £500...not bad. ...

 

[Unicorn77]

yes you can close a short anytime you want to

my broker is igmarket

/www.igmarkets.com

i don't tend to put stops on, unless its the dow/ftse, or i need to bring my margin down (placing a stop decreases the amount of funds needed for the position, the closers the stop, the less funds are required)

A first trade going short? at the moment the market is in a upward trend, but you may want to check out general motors, i've no looked into it too much, but its in real financial difficulties, but DYOR

 

[jonboy123]

yes you can close a short anytime you want to

my broker is igmarket

/www.igmarkets.com

i don't tend to put stops on, unless its the dow/ftse, or i need to bring my margin down (placing a stop decreases the amount of funds needed for the position, the closers the stop, the less funds are required)

A first trade going short? at the moment the market is in a upward trend, but you may want to check out general motors, i've no looked into it too much, but its in real financial difficulties, but DYOR

thanks.
would it make sense to take out a CFD to go long on a company, purely for the leverage given to me? eg. i just pay the margin on the total investment amount.
Say if ive got £1000 to play with. And i want to buy shares in say a UK bank like barclays. Should i buy enough shares so the margin would cost me say £800.
So then i would have £200 safety net money, in case the share price goes the other way, and i need to deposit more money to stay in the trade.

Are CFDs usually for short term trades , or long ones too? (in terms of days/weeks)

If i put a stop on just below the current share price, and it sells at loss, as in a stop loss, then i LOSE money, but the share price may rise after this level.
So make sense to put the stop loss in AFTER my surplus £200 gets used up in that kinda leeway area.

CFD scares me, im not gonna rush it.

 

[Unicorn77]

yes it does make sense to hold a long term long, just for the leverage, i opened a long on lloy at 40.5P and held it till 80Pish

i personally leave surplus in the account unless i know the sp will go up, or i will sell at a profit


yes if you put a stop loss just below the current sp and it trigger, you will lose the money, even if the share price rises afterwards, as you no longer own the contract.

you should be confident in your trades, it doesn't make sense to put a stop loss in after your surplus is used, it makes sense to put a stop loss in below a support level i.e, a level you don't think it will drop below.

go on igmarkets.com, and set up a demo account, it will be easier to understand

 

[jonboy123]

yes it does make sense to hold a long term long, just for the leverage, i opened a long on lloy at 40.5P and held it till 80Pish

i personally leave surplus in the account unless i know the sp will go up, or i will sell at a profit


yes if you put a stop loss just below the current sp and it trigger, you will lose the money, even if the share price rises afterwards, as you no longer own the contract.

you should be confident in your trades, it doesn't make sense to put a stop loss in after your surplus is used, it makes sense to put a stop loss in below a support level i.e, a level you don't think it will drop below.

go on igmarkets.com, and set up a demo account, it will be easier to understand

thankyou. ive just read IG markets site quite thourougly, its becoming clearer.

So say if you have a CFD worth £1000 shares, you pay £100 margin, (long trade), the share price drops and now the total value is £800, you close the postion, at a loss.
How much do you lose overall in the CFD trade ? £200? (roughly speaking)

trader account or limited risk account? (IG markets)
they say "you can lose more than your deoposit" on a trader account.
But with a guaranteeed stop, you KNOW this amount already. You just take it into account and have the extra money ready if need be. True?

Limited risk account:
"You can never lose more than your initial deposit"

The trading education thing they offer, i dont understand their costing for this. Is it worth getting to learn etc?

 

[Unicorn77]

most of this you will find by trading on a demo account

yes with a trader account you can lose more than you put in, so if your total deposit on the trade is £100, you can lose more than that.

learning is a vital part, but you don't have to pay for it, theres plenty of useful info on the internet, I taught myself and looked up things on the internet to fill the "gaps"

 

[jonboy123]

If i go long and buy £5000 worth of shares on a CFD, i pay the margin of £500. Say if i do not put a stop on, and the share price drops making the value of shares £4000. Would i need to deposit any more money? Or can i just sit and wait until the shares jump up and put me in profit? I would only need to depoit more money, if i close the trade at a loss, right? If the trade is left open, i just sit and wait for share price to increase however long it takes......correct assumption?

 

[GrayTrader]

Jonboy.....I hope you haven't given up on cfd's. I traded them through various brokers for over a year, & eventually got fed up with the complicated nature of the beast....then I discovered cfd's Spread Betting. Easy, painless & profitable.
I'm retired now, & really enjoy life. I trade UK FTSE 100 stocks, the pace is slower, the margins lower (Depending on your appetite for risk), and the rewards, though not so high as other ways of trading, are steady. So far, no heart attacks!
Happy trading

 

[SaraRose]

The question whether you will need to deposit extra money refers to scenario in which the trade goes against you. Well, it depends on your brokers and how it calculates the stop-out or margin call. For example, I trade with sunbirdfx, alpari or fxcm, which determines the stop-out as 0.25% of the total size of the position... find out how it works with your broker.