new to cfd need some help

[happyhappyhappy]

Hi, sorry if these are obvious questions or have been asked before ( I have checked first) .

Can anybody tell me with CFD's can you trade almost any UK stock?

Can you hold the CFD as long as you want ( I know it costs you in financing)

Is there normally a limit to the comission charges on CFD's, ?

Any help appreciated.

 

[spreadrisk]

"Can anybody tell me with CFD's can you trade almost any UK stock?"

Yes, but depends on the supplier of the CFD ("broker").
I think Via Trader allows you to pick any UK stock and it turns your trade into a CFD.

"Can you hold the CFD as long as you want ( I know it costs you in financing)"

Yes, but read the terms and conditions just in case.

"Is there normally a limit to the comission charges on CFD's, ?"

Commission charge differ from supplier to supplier. Some charge a flat rate with minimum, some a rate per share with no minimum, all sorts of ways to charge commissions! ODL charge no commission on the FTSE100 Index, and 0.2% on UK shares (minimum trade = 1 share).

Good luck.

 

[happyhappyhappy]

Cheers spreadrisk, I am thinking of using Barclays simply because I used to trade through Charles Schwab and Barclays took them over and I feel kept up the good service, but i have been reading loads about how different brokers charge you differing rates etc.

Barclays has loads of information on their CFD's but the above was not apparent to me anywhere on their site. They don't seem to mention any minimum amount you have to have in the account either. I am thinking of starting with about £5000 and seeing how I go before I go bigger.

Any basic tips you can offer?

Who is ODL?

Another odd question - I know cfd's are meant to be short term, but if you had a cfd that was a fairly good riser wouldn't you keep it for as long as an ordinary stock, ie a year or two. I know the financing would get big but surely if it is a good riser, like say "VCT" or "DNX" considering the margin you would easily cover any financing and with the stocks I offer here after a while you would make enough headway to suffer a couple of setbacks without any real loss. Or am I being silly here? It just seems to me that everything you read expects you to get out after a short period and I cannot see why you shouldn't stay in if you pick right.

Your comments would be appreciated.

 

[polar828]

"I know the financing would get big but surely if it is a good riser, like say "VCT" or "DNX" considering the margin you would easily cover any financing and with the stocks I offer here after a while you would make enough headway to suffer a couple of setbacks without any real loss. Or am I being silly here? It just seems to me that everything you read expects you to get out after a short period and I cannot see why you shouldn't stay in if you pick right."

Nothing silly here.
1) If you are long overnight you will pay interest rate, e.g. Libor +2 or +3%, depending on your broker, if you are short overnight your broker will pay you interest rate.

2) As a sample:
You open a long positions buying 1000 CFDs for 61.30.-, value of your position =61.300.-
lets say your margin is 5%, so your deposit is 3.065.-
let´s say you sell 60 days later while the underlying went up to 88.88.- , = 45%
the five % margin means a leverage of 20, means a profit of 900% compared to the deposited margin, the 3.065 became 30.650.-. So far so good.
The financing costs however are calculated from the whole position size. Let´s say Libor plus 3% is 5%at the time it would mean you pay 5,5% annual interest on the 61.300.-.
Means for the sixty days you would stay ahaed of 30.000.- even with paid interest.

3) Mind how fast the overall loss will increase if the position runs against you and you dont have stops or watch your position carefully.

good luck,
polar828

 

[spreadrisk]

"Any basic tips you can offer? "

Treat them (CFD's) almost the same as you would if you were trading the shares.
By that I mean don't over use the margin, and don't overtrade, and employ the same risk and money management as with shares.
CFD's tend to make you go silly at times, making you think you have more money than you actually can afford to lose. When a trade goes against you you suffer just as much (more) with CFD's.
Obviously CFD's make it easier to Short the shares, so keep diversified as much as possible and don't risk too much on one or two trades. You may think your picks are correct, but the name of the game is STAY IN THE MARKET!


Good luck

Who is ODL? "

www.odlsecurities.co.uk
(they do CFD's)
But constantly check out all CFD suppliers, as the playing field moves rapidly.
If Barclays are one of those CFD suppliers who set their own prices, I wouldn't touch them with a barge pole.
Either you are playing the REAL MARKET or you don't play!

 

[happyhappyhappy]

Cheers guys, just to check that I have the theory right, if I was going long and and was fairly confident of my pick to rise, wouldn't I simply apply a stop far enough below the current price so I don't come out too easily at the first drop but at the same time high enough so that I am prevented from losing too much if I am unlucky. That way if I am unlucky, I lose a few hundred but if I am lucky I my gain is unlimited?

What about if I go short and get it right, I still find it strange, (have I got it right) they keep paying me interest? It's feels like a bonus on top of any lucky or correctly guessed deal.

I have read that some people move their stops, is this possible? If this is possible, and for example you were going long, wouldn't you just keep lifting your stop higher, a bit like lifting a safety net higher and higher under you as you climbed. Surely in this sinario you couldn't lose because you would have protected yourself from ever getting back to the place you started at.

As before any comments appreciated.

 

[happyhappyhappy]

www.odlsecurities.co.uk
(they do CFD's)
But constantly check out all CFD suppliers, as the playing field moves rapidly.
If Barclays are one of those CFD suppliers who set their own prices, I wouldn't touch them with a barge pole.
Either you are playing the REAL MARKET or you don't play!


spreadrisk, appreciate your help and sorry if I'm being dumb here but I am not sure what you mean here, do you know that Barclays set their own prices or are you saying to check that they don't? And what does this mean, surely their prices have to be what ever the shares are at not some price they make up, please can you clear up what is meant by "Set their own price" for me.

Also do you use ODL, I assume you do? Don't mean to ask every nitty gritty detail but any particular reason for picking them as opposed to any other?

 

[spreadrisk]

hhh

If you go short using CFD's you will be paid interest.
Say YOU are the CFD supplier and I use you to short shares.
You will go to the market and sell shares and this means you have money in the bank.
You will enter into a contract, the CFD, with me and I promise to make good any difference in the share price.
Because you have money in the Bank, you pay some of the interest on that money to me.

Now to the best CON with CFD's and Spreadbets... the B/A prices.
Using these instruments has NOTHING to do with the actual share price in the real market. The suppliers set their own prices, usually to their advantage.

Example:
Barclays market share B/A is 600/601 and is trending up.
CFD Bid/Ask is 601/603 because the supplier sets a 2pence spread and the stock is rising.

You decise to buy the CFD's at 603.
You were correct and the share price in the real market goes to 603/604, a 3pence rise.
Mean while the CFD Bid/Ask goes to 604/606 because the supplier says so.
You sell at 604 and make 1pence gain.
In the real market the trade would have been, buy at 601 and sell at 603 a gain of 2 pence.

This way the CFD supplier makes more money and your true costs are much higher than you at first realise.

Check the small print of the CFD supplier, what looks like a good deal usually is NOT.
It would be possible to give punters a ZERO Bid/Ask spread and still the supplier makes money because of the skewed prices.

Currently I am out of the market and waiting.

Cheers

 

[spreadrisk]

hhh

Also remember dividends.
If you are long you will get a portion of any due dividends.
If you are short you have to pay a portion (upto 100%) of any due dividends.

Yet another way for the suppliers to make money!

 

[Mattybuoy]

One thing to bear in mind about the financing charges for longer-term positions:

As your (long) position improves, the daily interest goes up. It is charged on the current value of the position, not the initial value.

The same applies to shorts, the daily interest credit decreases as the stock falls in price.

You're not just borrowing to finance the initial position. If the same thing applied to mortgages you would pay interest based on the value of your house, not the purchase price.

Sucketh? Yes, I think so ...

 

[Mattybuoy]

To answer part of the original question:

The range of stocks that you can trade varies quite a lot. Most providers seem to basically offer only the FTSE 350. IG Markets (for example) have a wider published range but it's still nothing like the whole market.

Having said that, assuming that the CFD provider isn't just bucketing (i.e. they hedge your position in the cash market) I suspect that most will be happy to treat each stock on its own merits if you ask them. In which case liquidity would probably be their main concern.

 

[happyhappyhappy]

Cheers spreadrisk

Now to the best CON with CFD's and Spreadbets... the B/A prices.
Using these instruments has NOTHING to do with the actual share price in the real market. The suppliers set their own prices, usually to their advantage.

You say here that the CFD price has nothing to do with the market price but in your example clearly it is related. If it were not how would you know what to pick with no idea of the price on offer. I assume you fancy something and then phone the CFD provider up to check their prices and hope they have not been too greedy with their price. Is that so? Anyway I would hope that the differences they set would not be enough to damage any profits significantly. If I got involved in a CFD I would hope to achieve bigger moves than the 1p you mention. So I do get your point that they are skimming off you all the time but would accept that as long as it was not too extravagant on their part. I don't mean to sound harsh here, I just want to make sure I understand every angle before I get involved.

Cheers Mattybuoy

One thing to bear in mind about the financing charges for longer-term positions:

As your (long) position improves, the daily interest goes up. It is charged on the current value of the position, not the initial value.

Surely any financing wont matter because even if it goes up you would be happy because that would mean your stock would be going up? Surely you must make more on the rising stock than they charge on financing?

What I am finding hard to get to grasps with is using for example some of the stocks I mention above say VCT, this stock has climbed relatively well for a year, if you bought this wouldn't you keep it for as long as it did good even if you had the odd downer month? Surely you would not care if your financing climbed over the rise because your profit on the move would easily dwarf the measly for example £3 or £4 per day. I know your financing could amount to over £1000 after a year but your profits would enable you to pay this easily. Everywhere you read about CFD's they imply you get out quick but why would you on a good stock or am I missing something? Why not stay in for a couple of years if the stock is good and just pay the £3000 of financing or what ever it is? Can anybody advise me on this bit please, have I got it mixed up?

Any info appreciated.

 

[polar828]

Cheers spreadrisk



You say here that the CFD price has nothing to do with the market price but in your example clearly it is related.


"Nothing to do" is a bit too strong, of course there a relation between CFD price and the underlying stock, but while some providers will give you direct access to the market others will act as "market maker" and take a bit of your cake through pricing in spreads. As long as you think about staying long for quite a while, it´s neglectable, if you trade your position frequently, of course it matters. However, a "market maker" might give you a guaranteed S/L , - it will cost extra-, something you will not get dealing with the market directly.

regards,
polar828

 

[happyhappyhappy]

Cheers polar828

but what about my earlier question, does anybody let you move your stops, which would almost prevent you losing any money once you had achieved a reasonable gain?

 

[polar828]

Cheers polar828

but what about my earlier question, does anybody let you move your stops, which would almost prevent you losing any money once you had achieved a reasonable gain?

Depends on your provider. Ask about trailing stops.
Or how much they charge for cancelling a S/L order (means you cancel the S/L order after a while and place a new one, here it´s about 2.50.- Euro )

 

[spreadrisk]

""Nothing to do" is a bit too strong"

Maybe it is abit strong, but when the real share price is nicely in profit, your CFD can still be in loss.
Of course the CFD has to be relatively near to the share price, or else the supplier would not last long.
You should remember that CFD supliers exist for one reason... to make money for themselves. There is a constant stream of newies who think, "Anyway I would hope that the differences they set would not be enough to damage any profits significantly".

They are under no obligation to closely track the share price.

Be carefull of the CFD suppliers who make very tempting adverts about "tight spreads" and the like.
DealForFree or CMC (now think about it DEAL FOR FREE, DEAL FOR FREE, I don't think so!) advertise alot and they suck in lots of newies on a promise of easy profits.
My experience of them (CMC) is that they constantly Re-Quote a price until you accept and it is always to their advantage.
Also, if you place a Stop Loss they will try to spike their price to take you out, I had that on more than a few trades.

Remember that using CFD's means you are taking a loan to trade long stock, you may be better off simply getting a bank loan and trading the real shares.

My Barclays example of a rise of 3 pence resulting in a 1 pence profit (before costs) was not unusual, there are plenty of punters playing CFD's that way. But it gets worse if the trade goes against you, again because of the suppliers (NOT ALL THE SUPPLIERS) way of skewing their prices.

Example:

Barclays real share B/A price is 600/601 and is trending up.
CFD Bid/Ask is 601/603.

You buy the CFD at 603.

The share reverses in price and gets to 595/596 because of bad news.
The CFD Bid/Ask is now 592/594 because they say so (maybe after several Re-Quotes).
You decide to close your position and Sell the CFD at 592 pence.
You lost 603 - 592 = 11 pence.
In the Market you would have lost 601 - 595 = 6 pence.

In a fast/ volatile market the price you get can be a lottery.

Are you getting the picture?

I am not trying to put you off, and you may have different experiences than I have had, but these are some of the things you should be aware of.

Cheers

 

[happyhappyhappy]

Cheers polar828,

Barclays are who I was tempted to use, having dealt with them for a good while now on ordinary stock dealing. Do you know if they are any good when it comes to CFD's? Are there any you would recommend and any that you would say stay away from? I have seen many posts moaning about "Deal4Free". I am not sure who to choose at the moment, there does not seem to be a review on best CFD provider.

 

[spreadrisk]

hhh

I see that VCT Bid/Ask is currently 742.5/747.5 and has a great 1 year chart.
If you can, use VCT as your example and phone Barclays, Deal4Free and ODL for their current quote.
My bet is (and yes I would put money on it) that ODL will be nearest (probably spot on) to the real Bid/Ask, Barclays will have the widest spread, D4F will have the tightest spread worst skew.
Cheapest overall will be ODL.

 

[polar828]

" am not trying to put you off, and you may have different experiences than I have had, but these are some of the things you should be aware of."

Spreadrisk, I fully subscribe to your whole posting.
I do not have any idea about spreadbetting and I am not trading stocks or CFD´s in such small timeframes,- except if my S/L is triggered which tells me that my original position was wrong.

If you keep your position days or weeks, costs for interest or even differences in spreads will not matter, if the underlying moves in your direction. Would you agree?
Personally I avoid market makers not because of the spread but because they give you a pretty small selection of tradeable stocks only. And if you see CFD´s as leverage for your personal trading plan only, that´s not sufficient (I am trading NYSE, NASDAQ and AMEX only"

regards,
Polar828

 

[happyhappyhappy]

Cheers spreadrisk for the tip

Cheapest overall will be ODL.

Do use ODL then? Do they have a minimum to put with them to trade CFD's?

Cheers polar828

Personally I avoid market makers not because of the spread but because they give you a pretty small selection of tradeable stocks only.

Sorry if I'm being dumb but what is a market maker, and how would you avoid one? Is Barclays or ODL a Market maker, or what are they?