You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
escudoturbo
Newbie
- Messages
- 9
- Likes
- 1
A cfd is a 'contract for difference' is a geared product sitting between shares and a spread bet.
- You do not own the underlying with a CFD, though the broker may purchace(sell) it to hedge against you position
- You have less legal rights as you are considered an 'experienced investor' by the FSA
- CFD's are bought on margin, often with as little as 5% capital
- Becauce of the low margin requirements a freefalling(skyward) market could easily wipe out everything in your account and leave you liable for a large bill also
- You can (usualy) access a wide range of markets from commodities to forex often with minimal commision costs
- The spread can often be wider (depending on the market) as this is where most CFD broker make thier profits
- You avoid paying stamp duty
Overall depending where you are as a trader should dictate wether CFD's are for you, used as a hedgeing tool they can be fantastic, daytrading using only CFD's can be a quick road to ruin. Also choose your CFD broker wisely as some can wipe out tight stop losses with price spikes or take time executing trades.
For more info check Contract for difference - Traderpedia
- You do not own the underlying with a CFD, though the broker may purchace(sell) it to hedge against you position
- You have less legal rights as you are considered an 'experienced investor' by the FSA
- CFD's are bought on margin, often with as little as 5% capital
- Becauce of the low margin requirements a freefalling(skyward) market could easily wipe out everything in your account and leave you liable for a large bill also
- You can (usualy) access a wide range of markets from commodities to forex often with minimal commision costs
- The spread can often be wider (depending on the market) as this is where most CFD broker make thier profits
- You avoid paying stamp duty
Overall depending where you are as a trader should dictate wether CFD's are for you, used as a hedgeing tool they can be fantastic, daytrading using only CFD's can be a quick road to ruin. Also choose your CFD broker wisely as some can wipe out tight stop losses with price spikes or take time executing trades.
For more info check Contract for difference - Traderpedia
What are they is probably the wrong question. As stated it is an acronym for Contract for Differnece. Basically it is a way of buying shares. You put an order on, for example to buy 1000 Barclays at £3. The CFD provider goes into the market and buys 1000 Barclays at £3. As a CFD is a geared product the provider stumps up the three grand and takes a deposit or margin from you of, for arguments sake 10% or ££300.He will also statrt charging you Base+2% or similar on a daily basis for lending you £2700. To chear you up, there's no SDRT to pay (saving £15). So you are now controlling a long position of 1000 Barclays for the princely sum of £300. Good news Barclays goes to 320p. You place order to sell 1000 Barclays at 320. CFD provider goes to market and sells stock. Now the difference (get it, difference) of 1000x 20p is yours! I make that £200 (on a capital outlay of £300). Return=60% plus. Compare that to buying and selling the shares in the traditional manner where the %return would be....I don't know exactly but a lot, lot less.
Ok, lets say the shares drop 50p. In this case you will have to maintain your margin of 10%. Which means you need to deposit another £50 (making your total deposit £350: £300 for margin, £50 margin for the loss). In theory it is no more dangerous than buying the shares. The danger is in the gearing. If you have £1000 to buy shares you should only play with £100 margin (not £1000) for a CFD. But that's not how punters play CFDs.
Ok, lets say the shares drop 50p. In this case you will have to maintain your margin of 10%. Which means you need to deposit another £50 (making your total deposit £350: £300 for margin, £50 margin for the loss). In theory it is no more dangerous than buying the shares. The danger is in the gearing. If you have £1000 to buy shares you should only play with £100 margin (not £1000) for a CFD. But that's not how punters play CFDs.
eagletower
Member
- Messages
- 71
- Likes
- 7
They're a lot higher risk than normal shares as you are trading on margin, plus the "punter" psychology can kick in , so be very careful.
They're a lot higher risk than normal shares as you are trading on margin, plus the "punter" psychology can kick in , so be very careful.
Why is it riskier? You can buy shares through a stock broker T+10 or longer with margin. Maybe the CFD outfits are encouraging the gambling aspect but that doesn't make a CFD trade riskier. I read somewhere that the average trading lifespan of a CFD client is 12 months, so presumably it does attract gamblers rather than investors, but that doesn't make it riskier. What has the more risk, buying 1000 Barclays with traditional broker or buying 1000 Barcleays via a CFD. In fact you could run the CFD longer (at a cost obviously)
eagletower
Member
- Messages
- 71
- Likes
- 7
Why is it riskier? You can buy shares through a stock broker T+10 or longer with margin. Maybe the CFD outfits are encouraging the gambling aspect but that doesn't make a CFD trade riskier. I read somewhere that the average trading lifespan of a CFD client is 12 months, so presumably it does attract gamblers rather than investors, but that doesn't make it riskier. What has the more risk, buying 1000 Barclays with traditional broker or buying 1000 Barcleays via a CFD. In fact you could run the CFD longer (at a cost obviously)
sorry, my post wasn't worded correctly. What i meant to say is in relation to your deposit it is higher risk because you can lose more than you put down, ( obviously with shares you put down a the whole amount to begin with anyway) someone may thinking their liability is limited to the deposit , when it is in fact to the whole exposure, But you are correct 1000 shares or 1000 CFDs of a stock are the same level of risk.
Buy 1000 Barclays shares via a stockbroker and if the shares moves down 10% you'll lose 10% oif your invested capital.
Buy 1000 Barclays shares via CFDs and if they go down 10% you'll lose 100% or maybe 200% of your invested capital.
True, but you lose the same in money terms (£300).
Is there a higher risk in losing £300 by buying the stock or by buying through CFD?
True, but you lose the same in money terms (£300).
Is there a higher risk in losing £300 by buying the stock or by buying through CFD?
No, as long as you use a CFD broker that offers direct market access (the same prices you'd trade at if you bought/sold the cash shares) over one that makes their own markets.
one that makes their own markets.
Who are they then??