CFD trading

W

Wallace

installed a Gain/Forex mt4 demo and discovered CFDs - Contract For Differences

they're relatively new in Canada, Oanada has them now, FXCM doesn't, but they're
not allowed to be traded in the US and some other countries

Canadian margin for the DJIA is 3.5% and 4% for the SP500, which works out to:
1518.00 x 10 contracts - one lot - min trade size is: $1518 x 10 x 4% = $607.20
ES day trade margin is $400 , a tick $12.50 v the cfd's $10 . commissions are
comparable, ES under $5 , cfd $5.15 based on the spread, no additional fees, but
the large difference is the overnight margin, the ES rises to $3,850 while the cfd
remains at $607.20 , BIG plus

Forex offers 22 cfds/futures, is expanding the list, and on a new platform - soon
http://www.forex.com/ca/forex-cfds/metatrader/product-details.html
 
CFD is actually the preferred method to swing trade for short period of time as the size is so flexible with many of these firms you can apply proper money management for even very small accounts.

There are a number of issues you have to be aware of though,

1. some firms charge extra for weekend holding
2. some firms charge a small daily rollover fee on the CFDs even though they are not FX spot pairs. the bad part, of course, is that the fee is both ways, while some fx spot pairs you get positive carry in one direction
3. some firms charge very steep banking charge

I have accounts with quite a number of these firms and I am checking out Oanda's right now too. I prefer moving my European accounts back to Canada if possible.
 
Quote from Wallace:

installed a Gain/Forex mt4 demo and discovered CFDs - Contract For Differences

they're relatively new in Canada, Oanada has them now, FXCM doesn't, but they're
not allowed to be traded in the US and some other countries

Canadian margin for the DJIA is 3.5% and 4% for the SP500, which works out to:
1518.00 x 10 contracts - one lot - min trade size is: $1518 x 10 x 4% = $607.20
ES day trade margin is $400 , a tick $12.50 v the cfd's $10 . commissions are
comparable, ES under $5 , cfd $5.15 based on the spread, no additional fees, but
the large difference is the overnight margin, the ES rises to $3,850 while the cfd
remains at $607.20 , BIG plus

Forex offers 22 cfds/futures, is expanding the list, and on a new platform - soon
http://www.forex.com/ca/forex-cfds/metatrader/product-details.html
More...

Wallace, please don't overlook the spread differences between CFDs and their underlying markets. They will all be wider than their related futures contract, often by a tick or two during the active session, and sometimes more during the inactive sessions.

I'm usually very critical of CFDs since they are so expensive this way, but I will say that Oanda's new offering does add one big advantage: unit size. Being able to trade down to 1 unit of risk in an index CFD (SP500 exposure at it's point value, that is, 1 unit = $1,514 in exposure to the equity index as of this writing) while being paid a positive interest rate to hold it long (finance charges apply for shrots,) AND no rollover to deal with (continuous contract) makes it a very interesting alternative to swing trading an index ETF like SPY...

I still have to dig deeper to put my final stamp of approval on the SP500 CFD Oanda offers, but yeah, all this at first glance looks cool.

As for intraday trading, as usual, futures would be cheaper to trade on an equal exposure basis. CFDs can't win there nor will they be able to given how they are structured and how the broker needs to execute in the underlying market when you place a trade.
 
Lawrence: Forex doesn't have charges for the indexes but does charge +/- interest
on the currency based cfds
Oanda does charge interest on the spx500 +1.3% on the Buy -2.9% on the Sell

Jack: not interested in day trading the spx cfd except for B&H as pointed out, it's a
real deal compared to futures, 6:1 ratio if one were to use the futures initail margin
amount to trade with
but the Canadian leverage to trade gold is way high, 22% over 3 times the futures
although that's about 50% of initial margin so again its a better deal than futures
 
Quote from Wallace:



Jack: not interested in day trading the spx cfd except for B&H as pointed out, it's a
real deal compared to futures, 6:1 ratio if one were to use the futures initail margin
amount to trade with
but the Canadian leverage to trade gold is way high, 22% over 3 times the futures
although that's about 50% of initial margin so again its a better deal than futures
More...

I don't really focus on leverage, I focus on exposure (contract value, tick value, etc..) since I don't trade using ultra high leverage anyway.

I do look at costs, and CFD spreads are padded (it's how the broker makes money if they are hedging out in the underlying market when you trade, though they also make shit tonnes off CFDs when they detect you are a loser or newb and just deal to you directly without hedging out in the backend.) So you have to be consciously aware that you are paying more to trade CFDs on a spread basis alone than other markets, and that hits you if you are profitable or not on a trade.

Just saying. It's a huge factor when it comes to trading profitably. If your trading record only has an expectancy of 1-5 ticks, then paying that extra tick in spread markup for a CFD directly impacts your results by a harsh amount.

All that being said, I'm still viewing Oanda's offerings specifically as a positive, since they give the ability to hold positive interest bearing positions while also allowing for much smaller unit sizes than other CFD offerings (better defined risk.)

I just like the idea of being paid interest on unmargined funds in your account, plus positive interest to hold the index long. I'd have to work out some numbers to be sure (I reserve the right to be worng on this, I've only but galnced at their offerings so far and haven't had the time to dig deep,) but it might be an alternative to index investing when your total exposure is near your account balance.... as any additional cost on the spread is more than made up for (over time) with interest payments made to you on the unmargined balance and for the long index position.

Most brokers charge you to hold long on indexes overnight, and don't pay interest on the account balance itself... so the different is huge.
 
Quote from Wallace:

Lawrence: Forex doesn't have charges for the indexes but does charge +/- interest
on the currency based cfds
Oanda does charge interest on the spx500 +1.3% on the Buy -2.9% on the Sell
More...

These 2 firms are the more reputable ones.

I will setup a test account with Oanda and see how some of my models work with their fills on forex and CFDs.

Will be interesting comparison against the other accounts I have using exactly the same algo. =)
 
Jack: you're talking pineapples, I'm talking potatoes

I'm not really interested in spreads or 5 ticks, I'm thinking of a Buy when the S&P
was at 700 in 2009 and the trade's still open

but more recently, a Buy Nov 15/12 around 1353 , held till Nov 18 and Closed at
1446 , then a Sell for a week or so and on Dec 28 , a Buy at 1402 and held until
Feb 19 , Closed at 1530 , and, doubling whenever possible on the way up/down
also interest rates don't interest me, I'd rather not have them - FOREX.com


Lawrence: I had an account with FxPro, Cyprus for about 30 days until they stopped
doing business with North Americans, don't know the margin required to trade a cfd
but they had fx margin up to 4 or 500:1 , so cfds must have been really cheap
Oanda should be good on fx, but watch out during 'announcement' since the spread
on the eurusd for instance automatically widens usually up to 10 pips, and on a very
wild 'happening', 30 pips
you might also consider Globex micro contracts which are priced at $330 for the
initial / overnight margin but, $100 for day trades; $12,500 contract for the eurusd
contract sizes vary depending on the pair, limited to 6 pairs -
AMP and other futures brokers: http://www.ampfutures.com/contract_specs.html
http://www.ampfutures.com/margins_req.html
 
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