Newbie CFD Help Please

[forexster]

Hi, I am a forex trader, and i have no clue how CFD's work. I have read on many websites that CFD is like buying a share without really purchasing a share, and its leveraged.

A) Is CFD You Vs Broker, so if said ebay was going to increase in value by 30% in its share, and it does.. the broker pays that. Or CFD is another way of trading the market?

B) How does CFD work?


I would really apreate if someone answeared the above questions thanks.

 

[henry766]

welcome to trading forexster , you got a long way to go my friend!!

 

[forexster]

hey mate, can you explain me the entire process or a website that does, i will be really greatfull

 

[Captain Haddock]

Check out sites like www.deal4free.com www.gni.com they should give you some idea of how trading CFD's works

 

[henry766]

cfd's in effect are posh spread bets!!!

 

[kevin546]

I was advised today that a Deal4free CFD account does not offer anything more to a Deal4free spreadbetting account, in fact they made a point that the CFD will be subject to Capital Gain Tax once the threshold is passed. I was under the impression that the spread and deal size would be better with a CFD account but the Deal4free CFD rep claimed otherwise.

Any views on this!

 

[the blades]

I was advised today that a Deal4free CFD account does not offer anything more to a Deal4free spreadbetting account, in fact they made a point that the CFD will be subject to Capital Gain Tax once the threshold is passed. I was under the impression that the spread and deal size would be better with a CFD account but the Deal4free CFD rep claimed otherwise.

Any views on this!

this is something I'd like more information on. Whilst it seems CFD's are a favoured tool of many city professional - many contributors here wouldn't spit on the idea of Spreadbetting. Yet both are derivatives with similar structures, aren't they?

I've often thought if spreadbetting was simply renamed the "sexier" CFD it would become more widely accepted.

UTB

 

[kevin546]

the blades

do you find you can take large deals ( £50 - £500 a point) without the spreadbetting company changing the price or delaying the fill to your cost.

Kevin

 

[the blades]

the blades

do you find you can take large deals ( £50 - £500 a point) without the spreadbetting company changing the price or delaying the fill to your cost.

Kevin

Hello Kevin,

My largest bet currently running is £25 per pt on the S&P. I have several concurrent £4 per pt bets on the FTSE, and many bets on individual stocks that are equivalent to £3,500 holdings. I have never had problems with fills or moving quotes. However, the individual bets are a long way short of the bet sizes you refer to (although the bet size has to be considered with the value of the stock, as you'll be well aware).

I can't see myself going past £5K holdings of stocks as my "system" generates many signals and I'd rather hold more stocks instead.

Can I take it that you've had problems and if so, what was the "slippage"?

UTB

 

[gullible]

Hello Kevin,

As I understand it the main differences between CFD and Spread Betting with CMC are:-

On indices (FTSE 100 for e.g) margin on CFD is 1%, but on SB the deposit is £50 per point.

Interest is charged on long positions held overnight. Currently interest works out to be about £1 per point. Whilst no interest is charged on SB accounts.

Interest is received (very little) on overnight short positions

Dividend is received on long positions if open overnight on Tuesdays, whilst is paid to CMC on short positions. No dividend is received or paid on Spreadbet accounts.

Any gains on CFDs are charged to tax under Capital Gains Tax legislation, whilst profits from SB are not taxable.

Similarities.

Spreads are the same.
As far as I can see the prices are exactly the same. Very, very occasionally there is a difference of 1point on FTSE 100 between CFD and SB.

Other than the above points, as far as I can tell both CFD and SB are very similar.

Happy New Year to all.


regards


Gullible

 

[the blades]

is 1%, but on SB the deposit is £50 per point.

Interest is charged on long positions held overnight. Currently interest works out to be about £1 per point. Whilst no interest is charged on SB accounts.

Eyup Gullible,

wrt SB - interest is charged (long) and paid (short) by means of a premium on the mid price of futures over the daily price. The price differential narrows to zero on the expiry date of the bet. If you are long and short - your overall interest charge may be zero. But it's fair to say interest of around 6%PA is charged on the quotes. If dividends are due, this amount will be less.

I believe it's this interest charge that gives rise to the suspicion that SB quotes are biased. A simple calculation at the time of the deal can check this.

Happy new year.

UTB

 

[kevin546]

The blades

Up late tonight err morning well Happy New Year anyway.

Re slippage largest position in share dealing was 100k shares with conventional broker in small value company no change in spread. Largest single deal with spreadbetting has been on the FTSE cash at £80 subject to market conditions the slippage was around 4 points on a round trip but could easily be more if market was moving fast. This makes the deal less profitable especially if day trading but can be absorbed if using a longer time frame of a day or more but still has a cost. This feature appears to be triggered at above £30 deals on the FTSE. Do not know for individual shares but this only represents 3 contracts so is quite small. I often traded in 10k - 20k shares before I turned to spreadbetting and generally with FTSE 100 had no slippage largest deal with shares through spreadbetting was £40 with Logica around 2 years ago had no problem but as the market fell things seemed to change. I prefer to concentrate on one instrument.

Kevin

 

[gullible]

Hello The Blades,

Thank you for an excellent reply. Learning all the time.

Happy New Year

Gullible

 

[kevin546]

Gullible

I thought the interest charged on overnight positions on SB only applied to rolling cash bets and that quarter's have a cost within the wider spread accounted for a charge. Out of interest, (non pun intended) apparently Capitalspreads are said to have favourable interest rates compared to CMC.

Kevin

 

[Racer]

. Out of interest, (non pun intended) apparently Capitalspreads are said to have favourable interest rates compared to CMC.

I think anyone would be more favourable than CMC if you take into account their negative points!

 

[gullible]

Hi Kevin,

In my expereince there is no interest charged on overnight SB positions, but on CFD interest is charged on daily basis on the total transaction value.i.e on FTSE a margin of 1% may have been paid, but interest is charged on the full index value.

I understand that interest is built into SB margin.

The above is my understanding may be others may throw additional light.

regards


Gullible

 

[the blades]

Gullible

I thought the interest charged on overnight positions on SB only applied to rolling cash bets and that quarter's have a cost within the wider spread accounted for a charge. Out of interest, (non pun intended) apparently Capitalspreads are said to have favourable interest rates compared to CMC.

Kevin

hello fella's,

the spread covers the market spread, plus the SB co's charge of around 0.5%. This is the cost of the deal that you have to overcome, long or short. No interest is factored into this spread. If you then take the mid price and compare it to the spot price - it will be around 1.5% higher for a bet that expires in 3 months, higher for far quarters. Because of this - if you go short you are effectively recieving interest as the mid points converge to zero on the expiry of the bet. The opposite is true for long positions as whichever long or short, it's still a buy lower sell higher game. Interest is also charged on overnight positions of daily bets though the ammount would be so small as to be unoticeable. It may be factored into the rollover spread here. Note that I'm talking individual shares here - indeces are based on futures pricing and interest - and someone else may explain the structure of these.

It is fair to say different co's charge differing rates of interest so it may be worth going long with one company and short with another. I seem to recall D4F have the higher interest charge. As for interest on margin - I don't believe this to be the case. I trade on credit and effectively pay nothing. Tha margin is simply the proportion of the deal you have to put up front to cover the risk of any losses.

Hope this helps,

UTB

 

[Ingot54]

Hi, I am a forex trader, and i have no clue how CFD's work. I have read on many websites that CFD is like buying a share without really purchasing a share, and its leveraged.

A) Is CFD You Vs Broker, so if said ebay was going to increase in value by 30% in its share, and it does.. the broker pays that. Or CFD is another way of trading the market?

B) How does CFD work?QUOTE]

Hi Forexster

I'd like to get back to the intent of this thread, and have a go at answering for you. Yes, you could visit a few web sites, but still be left in the twilight on how the thing works.

A Contract For Difference is a bet. You put up money to back your opinion of whether the price of a share, index, currency etc will rise (long position) or fall (short position).

You have market makers, who may or may not charge commission on the trade, and who may or may not offer a spread on the price. You have CFD providers who guarantee that their prices EXACTLY match the underlying share price, and others whose prices are sometimes very wide of the mark.

If you buy and sell on the same day, you will not be charged an interest charge on your position. If you have an open position overnight, an interest charge will apply. This can vary according to the instrument traded.

CFD's are leveraged instruments. It is possible to hold a position of $100,000 for a margin deposit of 5%, or $5000. Generally, though, the requirement on margin is 10%. Fees on top of this may include commission , plus a Guaranteed Stop Loss Order fee, for Limited Risk Accounts.

Limited Risk Accounts may qualify you for trading with reduced margin, but the Stop Loss Order must be no closer than a specified limit - between 5% and 10% away from the underlying.

Personally, I trade with a CFD provider whose prices exactly mirror the underlying. For this, I am guaranteed the price I see - no slippage. No liquidity problems either, as I make sure I trade companies with high average daily volume - the orders go straight through. The company I use actually buys the shares - you can see the order go in on the depth - if I buy/sell a large position. Sometimes the company will risk it, on small positions.

Indexes and currencies/commodities are different - spreads apply, but commission does not. (You should not double-dip, if you wish to retain customers).

hth

 

[emmer]

hey mate, can you explain me the entire process or a website that does, i will be really greatfull

Barclays are putting on a CFD seminar next month. Might just be a big sales pitch, but at least you'll be able to talk to their 'experts' about CFDs. It's free, so nothing to lose.