CFD's stay away from it?

[DrSafari]

Hi,

I am currently reading "The new trading for a lliving" by Alexander Elder and he writes the following about CFD's.

There are several serious misgivings about the CFDs. Commissions tend to be high relative to contract sizes. Bid-ask spreads are controlled by CFD issuers, who also control prices of contracts, which may deviate from prices of the underlying securities. In other words, a retail customer plays against a professional team that can move the goal posts during the game.

A client from New Zealand wrote: “Regarding CFDs and spread betting, it is worth understanding that with CFDs you are not just trying to beat the market but the casino too. CFD providers can set whatever prices they like for an instrument, as
it is their instrument. The fact that sometimes it emulates what happens in the stock market does not mean it is the same as trading in the stock market.”
CFDs are heavily marketed to new and inexperienced traders, extolling their potential gains, while glossing over risks. The Australian financial regulator ASIC considers trading CFDs riskier than gambling on horses or in casinos. CFDs are banned in the United States where regulators haven’t forgotten the bucket shops that flourished at the turn of the twentieth century.

I currently have an account on plus500 and obviously this text has me worried a bit. Will they really manipulate their instruments to make you lose? Even if you are a small fish with an account of 5000€ for instance? I get that their spread is probably bad but is really as risky as this text seems to suggest? Anyone has any experience with using plus500 (or other CFD platforms)? Just looking for some general advice.

I have searched on plus500 threads but I didn't get a satisfactory answer so I'm asking here.

Thanks a lot.

 

[Pferd]

I don't think it is as bad as some people claim. Surely they can "move" the market relative to the real price, but in very tiny amounts. Otherwise nowadays all these facts are easy to check, hence they will get caught and then have one customer less. But at least from my experience, if I im wrong (or right) in a trade I make or lose money enough so that one point more or less really does not affect me.

Regarding spreads, etc I find this claim correct. But you should also have in mind that they are allowing you to play in the "casino" with very little money and a lot of leverage. So, as I see it, they also have to make money somewhere. I don't have a problem with that.

You just need to be careful to find a CFD broker with a lot of business and that most of the times respect your entry/exit points. But in this as in any other business you should consider unexpected losses and wins as part of the process. What you should not accept is a broker that does not respect any of your entry/exit points most of the times.

The other small issues (don't trade illiquid products/don't trade at strange hours when the cash market is closed) you will learn with time.

If your broker offers you guaranteed stops even better, specially in these times of relative high volatility.

 

[WallStreetHero]

no professional trader there is on this planet uses these cfd and spread brokers, they are scams conning beginners and inexperience traders.

If you want to trade professionally then you need to do it professionally, with brokers like IB, Deutsche Bank etc.

 

[Pferd]

no professional trader there is on this planet uses these cfd and spread brokers, they are scams conning beginners and inexperience traders.

If you want to trade professionally then you need to do it professionally, with brokers like IB, Deutsche Bank etc.

I think you are missing the point here, he is precisely not asking about professional trading....

 

[DrSafari]

I think you are missing the point here, he is precisely not asking about professional trading....

Well, it depends what you mean. I'm a retail trader yes but I'm looking to do trading for a living in the future.

I'm going to check out other brokerages for sure but I wanted to know how "bad" plus500 is to know how urgent I have to start looking into that. I am still in the phase of testing my trading system but it seems to be doing well the last few months. I have been trading for a year now so I'm not a complete beginner anymore but of course I still have a lot to learn.

 

[Pferd]

Well, it depends what you mean. I'm a retail trader yes but I'm looking to do trading for a living in the future.

I'm going to check out other brokerages for sure but I wanted to know how "bad" plus500 is to know how urgent I have to start looking into that. I am still in the phase of testing my trading system but it seems to be doing well the last few months. I have been trading for a year now so I'm not a complete beginner anymore but of course I still have a lot to learn.

I mean at this stage, according to your experience and amount available for trading. Regards.

 

[DrSafari]

I mean at this stage, according to your experience and amount available for trading. Regards.

Yeah agreed. I have around 40k available though. But I'm only going to start with that when I am sure I can consistenly make profits.

 

[timsk]

I currently have an account on plus500 and obviously this text has me worried a bit. Will they really manipulate their instruments to make you lose? Even if you are a small fish with an account of 5000€ for instance? I get that their spread is probably bad but is really as risky as this text seems to suggest? Anyone has any experience with using plus500 (or other CFD platforms)? Just looking for some general advice.

Hi DrSafari,
The issue you raise is a hot potato that's caused arguments between traders for years - on all forums - not just T2W. I can't tell you what's best for you or what you should or shouldn't do - you'll have to determine that for yourself. However, my personal views (without my T2W hat on) are as follows . . . .

I think Dr. Elder's comments and the person he quotes have more to do with the fact that CFDs are highly leveraged products. It's for this reason that they (and spread betting) are illegal in many countries. Yes, very often the client is trading against the firm they have their account with, and the conflict of interest implicit in this is well documented. However, there are ways around this if it particularly concerns you: e.g. by using a STP broker that offsets all client orders in the underlying market.

The statement made by WallStreetHero is very sweeping to say the least. I suspect that its validity - or otherwise - rather depends on how you define a professional trader. Certainly, many ex bank and proprietary traders use CFDs and spread betting. True enough, employees at Deutsche Bank and Goldman Sachs etc. probably don't - but that's likely to be because their contracts prevent them from doing so. Then there's the inference that 'retail' traders (i.e. most of us lot on T2W) would fair better with a 'real' direct market access (DMA) account than we would with a derivative CFD account. There's no evidence to support this that I'm aware of. A common observation made about this is that if you can't make money with a spread betting or CFD account, then switching to a DMA account is unlikely to make any difference. I've used both and, certainly, in my experience this is very true.

IMO, of greater importance than any of the above is your choice of broker - as opposed to your choice of financial vehicle (i.e. CFDs or spread betting etc.). Regarding Plus500, this thread may interest you if you've not seen it already: Does anyone actually use PLUS500? Regarding brokers in general, this post might help you filter out the one(s) most appropriate to your circumstances and trading style.
Tim.

 

[DrSafari]

Thanks for your post timsk! Makes sense that it's not a make or break thing so for now I'm going to continue on plus500 for learning purposes but I will start looking for another broker.

 

[tomorton]

Another good level post from timsk.

My experience lies with spreadbetting. Do they spike their prices to catch people's stops?

Think about how they might do it. Say the Dow is at 16360 and still rising, and the SB firm see they are carrying many SB long stops at 16330. So, according to the conspiracy theory, they drop their quote to 16325 and all the stops are taken out. But what some of those stopped people do, and a whole bunch of other traders, is immediately jump in long at 16325 where the SB price has obviously spiked to, as the underlying market is still 35pts higher, as are all the other SB firms. Clearly one SB firm can't stand 35pts off this market for very long, or they will get crucified.

Or have I missed something?

 

[f2calv]

Clearly one SB firm can't stand 35pts off this market for very long, or they will get crucified.

It would be really helpful if there was a 3rd party site which compared prices against various brokers/bucketshops in real time, so you could see who was being crafty/dishonest. Anyone know of such a site or a tool?

 

[tomorton]

It would be really helpful if there was a 3rd party site which compared prices against various brokers/bucketshops in real time, so you could see who was being crafty/dishonest. Anyone know of such a site or a tool?

But that's the point, any discrepancies between SB firms themselves and between any one of them and the underlying instrument would be tiny and temporary. The only way to trade these would be through very rapid timeframes, on a high frequency.

If you succeed in making money this way, the SB firm will assume you are arbitraging (they neither need to prove it nor accuse you) and will simply close your account.

 

[f2calv]

I wasn't asking because I wanted to arbitrage - purely to see which market maker had the ****test market making skills at any one particular time, i.e. on the 24th August it would have been interesting

 

[p0box4]

Hi,

I am currently reading "The new trading for a lliving" by Alexander Elder and he writes the following about CFD's.



I currently have an account on plus500 and obviously this text has me worried a bit. Will they really manipulate their instruments to make you lose? Even if you are a small fish with an account of 5000€ for instance? I get that their spread is probably bad but is really as risky as this text seems to suggest? Anyone has any experience with using plus500 (or other CFD platforms)? Just looking for some general advice.

I have searched on plus500 threads but I didn't get a satisfactory answer so I'm asking here.

Thanks a lot.

This is true, but it is the same for Forex.
If you want to be safe from cheating the only place you can go are regulated markets.
Best thing a trader can do to avoid it is picking a decent regulated broker.
Not all brokers are cheaters, in fact most brokers are not but traders who are unable to make some profits will always blame the broker.