CFD Trading???

morphman

Newbie
5 0
Can anyone tell me the drawbacks of CFD trading, as I am considering it as an alternative to normal brokerage, and cant seem to find any drawbacks.

I know that you can margin trade, which seems ideal, multiple profits, but multiple losses...Apart from that, what are the downsides?

Can you successfully day-trade in CFD's?
Do you attract margin interest if you open and close your positions within the same day?
Is www.deal4free.com the best one to go with, what are the alternatives?

If you make a margin trade up to your max value, and make a profit, can you keep buying without introducing new funds based on your prospective profits, up to your new margin limit?

Does opening an account have anything to do with credit status as to the margins allowed?



Your thoughts would be appreciated..
 

ChartMan

Legendary member
5,580 46
A lot of us use Deal4free.There are drawbacks....mostly on trading US stocks and ALL indecies.The US stocks are fast moving and you will find it very dificult to "scalp" with CMC.
The main reason is they calculate their prices using "futures".So when a stock is rising, their bid/offer is always top heavy. IE if the dow is at 8950 and rising, their price(typically ) will be 8950/8955...and if it were falling, it would be 8945/8950, so you are immediately a minimum of 10 points down on a regular trade.
If you take a longer term view ,eg, a few hours or few days, then this becomes less of an issue.Trading UK stocks is so slow it doesn't come into it. Always beware the rising spreads though.
The margin is useful, but NEVER use this to up your stake until you are really confident/experienced.Use the account as if it were not margined.
As far as I know, they don't include any currently "active trade profit" to enable you to increase your margin.
Be warned- CMC require you to demonstrate a minimum of 6 month's active trading AND a minumun "net worth" of £25,000 before they will consider you for an acount (5k). I can't speak for their spread betting account or system as I don't use it.
You can day trade with CMC and that's how most use it. Most never hold a position overnight, except in rare circumstances.
When you are long overnight, you pay them interest( tiny). When you are short overnight, they pay you interest.
I think the single biggest DISADVANTAGE to margined CFD's is the temptation to go mad.IE say your account is £5k ( min) . You can buy stock to the value of 25K, OR indecies to the value of £100k.
say you go long on the ftse100 - 100K worth (phew).. a move against you of 5% means you get wiped out 100%!!!!
Trade the ftse100 at £1-£5 a point- more than enough to make a nice little earner each day. At £5 per point, you are actually risking £1250 of your capital- thats 25% of your £5,000. That's more than I'd be comfortable risking as a percentage of my portfolio.
Look at it this way. If you put £1 long on the ftse and it goes up 25 points, ( and you bank it!) you have just made a 10% return on your capital that you risked (£250 times 20:1 margin). I consider that an adequate profit. Making 25points on the ftse is not that hard either. In two trades last week, I managed to make 17% in just over an hour's worth of trading time. I have to admit, this is rare for me as I seldom have the time to trade during the day, which made it all the more pleasing.
One final point.If you are considering day trading, the biggest lesson I learnt was this:
UNLESS you can dedicate and apply yourself 110% of the time you are actively trading, forget it. The market will swallow you up and spit you out. So the message is think carefully about if you can commit yourself to this, or would you be better swing trading over a few days, which is far less demanding.....
No doubt there comments from others...
 

Splurge

Member
88 3
New Member

Hi all,

New member reporting in!

Ok I have been trading for about two years and since August have made the quantum leap to Day trading full time.

I mainly spreadbet on indices and currencies at the moment and I am happy with the progress I am making with consistent profits each day. I really want to move to stocks but although my software has various bells and whistles (that do not work correctly at the moment) for finding those explosive stocks, I do not have the confidence to act on the info at the moment. I would say I am 90% analytics and 10% fundamentals. This is an area I am really weak on so any advice would be much appreciated.

I run one PC with Updata Trader Pro2 with 3 screens with a second PC with 2 screens for trading and the web in general although I can see T2W taking up most of the second at this rate. I would appreciate any feedback from anyone especially if you use Updata Pro 2 as well.

I am available for anyone to give me advice!!!! I still regard myself as a novice and will accept any positive suggestions / strategies with much appreciation.

Are there any regular 'meetings' arranged as this can be a very lonely business and I really could do with exchanging ideas on a regular basis.

Many Thanks
 

Hate2Lose

Active member
155 3
Can anyone tell me the drawbacks of CFD trading, as I am considering it as an alternative to normal brokerage, and cant seem to find any drawbacks.

I know that you can margin trade, which seems ideal, multiple profits, but multiple losses...Apart from that, what are the downsides?

Can you successfully day-trade in CFD's?
Do you attract margin interest if you open and close your positions within the same day?
Is www.deal4free.com the best one to go with, what are the alternatives?

If you make a margin trade up to your max value, and make a profit, can you keep buying without introducing new funds based on your prospective profits, up to your new margin limit?

Does opening an account have anything to do with credit status as to the margins allowed?



Your thoughts would be appreciated..
The biggest drawbacks include leveraged losses should things go wrong. Margin requirements depend on what you trade – some low, some high. If a position is kept open for long enough (you know what they say, ‘a long term trade is a short term trade gone wrong’) then the financing costs can build up. Daytrading is possible and if the position is not held overnight it does not attract financing costs. There are a host of providers out there. IG is the biggest and offers DMA (prices from exchanges, no spread added). Others include CItyIndex, CMC, Accendo, Alpari, ETX. Some providers allow you to trade with margin taken from running profits; others don’t. Your account type will depend on your provider and your financial situation. Margins required should the same for everyone, but some providers may require you to have a limited risk account or use guaranteed stops to minimise your risk. Other less choosey. Do your homework. Speak to a few.
 
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