Understanding the benifits of CFD's

[Euro_d]

I have been in the markets for years using spreadbetting Co's.
Now it seems that I am getting bombarded to switch to CFD's with the argument that the spreads are tighter. This seems not always to be correct.

My plea is for someone to explain why I should (or should not) switch to a CFD platform. Are the margin requirements similar? What about trade sizes?

Sorry if I have duplicated a previous thread but I have searched and cannot find the answers to my questions.

Thanks
euro_d

 

[cecja]

The best thing about CFD's is because the money is safe, if you trade spread beting if the company goes so your money does.

Trading CFD's you have to pay commison for every deal and there are firms that have min deal sizes but also are some firms who dont have min deal size, but all of them have min commison size,

As far as i'm aware the best CFD provider for people with small deal sizes is MYBROKER.COM (OLD SEC)

 

[Racer]

(Tax based on UK rules)
CFDs
If you have direct market access you buy at the 'sell' price and vice versa so you get the other side of the spread and act as a market maker.
pay CGT on CFDs, can offset losses.
No stamp duty
Margin varies with company mkt cap.

spreadbetting
no CGT, can't offset losses
no stamp
wide spread.. usually wider than underlying share price, can be very wide for small companies.

 

[peterpr]

I have been in the markets for years using spreadbetting Co's.
Now it seems that I am getting bombarded to switch to CFD's with the argument that the spreads are tighter. This seems not always to be correct.

My plea is for someone to explain why I should (or should not) switch to a CFD platform. Are the margin requirements similar? What about trade sizes?

Sorry if I have duplicated a previous thread but I have searched and cannot find the answers to my questions.

Thanks
euro_d

Further to Racer's post:

Pay interest on position value (ie @ £49,000 per $10 FTSE100 contract) for longs and earn interest for shorts ( interest spread @ Libor +/- 2%) so punitive when charging and not worth a lot when earning.

Credited with dividends whilst long and debited while short. If you hold a short position on the FTSE100 over a major reporting period for example, then you'd better be right because it will cost you. Granted big ex-dividend days tend to depress an index anyway - but by far less than will hit your account.

Margin requirements similar to SB's

The ability to trade directly in the underlying market with level II info with some providers (IG for example) can make them quite an attractive proposition though.

Horses for courses as usual.

 

[Racer]

Thanks peterpr, knew I had forgotten something!
But.. divis are also included with spreadbets .. different quotes on different quarters depending on when the div is paid

 

[Tuffty]

I normally do a detailed costing on each instrument I want to trade comparing the spread, and cost (or income if short) of holding. In order to do this you need to know what your average holding period is and how many trades p.a. you'll do. Also all the providers charges vary a lot so you'll need to choose the most advantageous for your trading profile (i.e. size and frequency of trades). I also include the cost of keeping a margin (normally doesn't earn interest when idle).

What would be useful is a matrix showing the different costs from each provider. The Investors Chronicle have done this in the past. However, a lot the the charges are open to negotiation depending on trading volume. I haven't found much information about what 'discounts' one can get and this information doesn't tend to get shared on these boards (unfortunately).

 

[Racer]

What would be useful is a matrix showing the different costs from each provider. The Investors Chronicle have done this in the past. However, a lot the the charges are open to negotiation depending on trading volume. I haven't found much information about what 'discounts' one can get and this information doesn't tend to get shared on these boards (unfortunately).

The only problem with that is that you could get as many answers as there are traders!

Discounts will depend on trading frequency and how long you have had the account, the company involved etc., etc.

 

[Euro_d]

Wow, thanks all.
So, is the conclusion that I stick with what I know, i.e., my SB Co's?
Yep. I agree the spreads are better but Deal4Free spreads on UKX are 2 points, I can live with that. They are also (IMHO) quite good on the very liquid stocks too and I like their stop execution. I have posted elsewhere on that subject.
I trade relatively short term on individual UK stocks, days rather than weeks. Plus intraday on the UKX. A total of around 30 to 50 times a month, not large amounts as I am in the process of turning a hobby into a full time venture.
Seems to me that as Peterpr (from my home county) correctly says horses for courses.

Can I deduce that there is no strong conviction between SB & CFD?

 

[Racer]

I wouldn't use d4f for trades of a reasonable size at all..

Definitely use CFDs for that.. also for shorting.. much better.. all that lovely interest! But watch the div as mentioned.
Longs over a long time frame I would use spreadbetters instead cos of the interest, but you have to work it out based on what you are quoted.

Beware though of special borrow with shorts (on some smaller cos) and CFDs, not good to pay interest to short a stock!

 

[Racer]

In fact I wouldn't use d4f at all for any size trade!

 

[cecja]

In fact I wouldn't use d4f at all for any size trade!

Racer, please do you mean that you wouldnt use CMC even for trading (CFD) of size of 200-500 shares.

Cheers

 

[Racer]

I wouldn't use that company at all, too many bad reports about them for my liking and that is from good traders who gave up with them.. not from bb gossip but from face to face conversations with traders.
As you see from my 'join' date for T2W I have been at this for a little while. I have been in the market for much longer than that too BTW! So I have been in contact with a lot of traders in that time,

 

[Euro_d]

Racer, that worries me somewhat. I am a rookie on these boards but not to trading.
Can you point me to a thread that details or IM me tomorrow morning?

Thanks

 

[pb]

Do we have a CFD broker yet who:
1. offers a large selection of US, UK stocks and major indices
2. lets you trade at actual market prices
3. has a flat commissions system (not % of trade size).
[Edit] 4. tells you their pricing structure upfront on their web site.

Last time when I checked there wasn't one that met all these criteria.

 

[Tuffty]

pratbh, I'm waiting in hope too. Etrade do a flat rate £9.95 for the UK100 but I don't think it's direct access. IGIndex's offering looked OK until I saw the finance charges. CFD charging structures seem to be were the retail brokers were a few years ago: all % comission based irrespective of the actual cost to the provider to do the deal.

 

[neil]

IG and Forex

pratbh, I'm waiting in hope too. Etrade do a flat rate £9.95 for the UK100 but I don't think it's direct access. IGIndex's offering looked OK until I saw the finance charges. CFD charging structures seem to be were the retail brokers were a few years ago: all % comission based irrespective of the actual cost to the provider to do the deal.

It seems IG CFD's let you trade commission free and they have mini forex accounts.