CFDs (Contract for Difference) Has anyone experience of this type of dealing?

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fran1496

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My stockbroker is strongly suggesting that I should open a CFD account.

He has given me some information about them including the risk factor but he feels they are more flexible and cost effective. As shares dont change hands no stamp duty is payable.T he broker would do the research and just charge his commision.

Has anyone experience of this type of dealing? I would appreciate their advice.

fran1496
 
Re: CFDs

fran1496 said:
The broker would do the research and just charge his commision.
Has anyone experience of this type of dealing? I would appreciate their advice.
fran1496
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If you are "long" a cfd and hold overnight you will also have financing charges because a cfd is a geared instrument ie you only put up say 10% of the cost price ( depends on what you are trading) and are effectively borrowing the remainder. If you intend to trade Index cfds - don't, it's much cheaper to trade the futures contract where there are no overnight carry fees. Enjoy :D.
 
Re: CFDs

because it is a magin based contract you could loose all of your initial margin deposit and still be liable for more

you do not pay UK stamp but I think that you will still pay Irish stamp if your holding period is longer than 30 calendar days

you do pay financing charges but the balance of the cash that you would have spent on actually acquiring the shares instead of a CFD can be put on deposit

depending on your financing rate the cost of the CFD could equal UK stamp after a few months

how experienced are you? Do you trade a lot. CFDs are probably not appropiate for a buy and hold strategy as your cost of finance will over time negate the benefit of not paying stamp.

what types of charges have you bee quoted?
 
Re: CFDs

Thank u for your comments. I have been dealing with Sharewatch for about 20 months on a buy and sell only basis at a commission rate of 0.5%---dealing in Irish shares.My knowledge of foreign shares is minimal and I would have to be dependant on the brokers recommendations.I realise I am just putting up about 10% and Icould be liable for much more but their knowledge should reduce the odds.
 
Re: CFDs

aside from Ireland and the UK, Switzerland and Greece also charge stamp on equity transactions. Thus using CFDs for dealing in other European countries really depends on your risk appetite and your average holding period.

Another benefit of CFDs is the ability to go short - not just individual stocks but the entire market (say by selling an ETF).
 
Re: CFDs

Sounds like your broker is putting his hands into your pocket - do you trust him to make recommendations based on your priorities and objectives or will he be tempted to offer trades based on his commissions ?

I would ignore such an offer unless you are 100% sure that he is acting in your best interests.
 
Re: CFDs

I would have to be dependent on the brokers recommendations... but their knowledge should reduce the odds.
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This is a really extraordinary comment. JPD is right. Brokers make their money by encouraging you to trade.

There is absolutely no evidence that brokers have any ability to predict the future prices of shares. In particular, there is no evidence that they can predict the short term movements of shares which is what CFDs are based on. So relying on your broker's recommendations would increase the odds of your losing money.

CFDs are gambling. They are not investments. You are predicting the price of a share and betting against someone who is betting in the opposite direction. The net result must be a zero sum game. Your gain is their loss. But the brokers and dealers take a percentage every time and it is a slow but sure way to lose all your money.

Brendan
 
I've traded extensively with CFD's. What commission rates is the broker charging - are they charging on the way in and the way out (on buying and selling). What are their financing costs for balances carried.

Personally, I never seek nor listen to any broker. If you do you'll find the broker calling you very, very regularly, taking you in and out of a stock. As you are margin trading you'll find you are doing bigger size transactions than you would be if you were paying in full for the holding.

Remember carefully, if you a paying say 1/2% comm. on both transactions (buy and sell) thats 1%. If say, your trading on a margin of 20% (too dangerous IMO to do less), your broker is earning 5% of your margin deposit. 20 trades a year and he's earned the equivalent of the entire capital you have put down - Whether your up or down don't matter to him, he's charging on the tranastion value,. (20 trades is nowt when trading CFD's - I've done 20 trades in a couple of days - It was a full time activity for me).

As said, I'd neither pay nor listen to a broker. I have found my own hit rate to be at least as good if not better than any Broker I've listened to in the past.

Unless your a bit of a Stock Market junkie (me) with a thorough knowledge of it's workings best avoid CFD's. You'll find you can concentrate on little else when trading CFD's.

If you still think it's for you there is a well known UK company that allows you deal for free ( no comm.) using their trading platform - ( which is very good). Only costs are financing of carried balances.
 
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fran1496 said:
My stockbroker is strongly suggesting that I should open a CFD account.

He has given me some information about them including the risk factor but he feels they are more flexible and cost effective. As shares dont change hands no stamp duty is payable.T he broker would do the research and just charge his commision.

Has anyone experience of this type of dealing? I would appreciate their advice.

fran1496
Click to expand...

When you trade CFD's you are using leverage - you put up the part value of the cost.

This can be 1) beneficial - if you know what you are doing - or 2) detrimental if you don't know what you are doing.

Most investors don't know what they are doing when they play the stock market - so it will usually be 2) above that plays out.

Why take on high risk if you don't have to, as there are easier and much less risky ways of using leverage (Options is one that comes to mind) - remember, people who are selling you something are salesmen, and their main interest is in the sale - not your welfare!

Rgds,

NTZ
 
As this thread is two years old I hope the OP wasn't long on the Irish banks...he's probably sleeping rough if he was. One Irish businessman has lost in excess of €600 million through CFD's on a certain Irish bank. The anonymity and stamp duty issues are all well and good but for many it's been jump out the office window stuff.
 
I find it hard to believe that one person could lose 600 M Euro - but anything is possible of course with leverage!

You are 100% correct in relation to stamp duty, etc, and it might well be best for one to adopt a more moral and truthful attitude towards accumulating wealth.

Personally, I have no problem paying tax on any money I make, and I will strive to make as much as I can; the tax is but an everday expense associated with the "business" (I do not like calling it a business as investing/trading does not have to be run like a business, as some of the activities associated with running a business do not lend well to the trading arena).

Anyway - once you put on a trade your money is at risk - no one can deny this fact. So, if you are going to take on risk, you MUST be fully aware of 1) how much you can AFFORD to lose 2) how much you are WILLING to lose and 3) how much you can ACTUALLY lose in the worse case scenario.

Only if you are fully aware of all 3 above can you then look at 4) the potential profit on a trade - but, gues what the majority of people think about, is it 123 or 4 - is it no wonder the majority of public investors / traders \ lose money!
 
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