CFDs vs stocks (liquidity)

MarketDiver

MarketDiver

I am not familiar to CFDs so forgive me for the questions that I am going to ask.

Here's why I think CFD is better than trading the real stocks.
1. CFDs have no liquidity issues, your orders will be executed almost instantly.
2. Low liquidity stocks are not scalable. You can trade the CFD of that particular stock as large as you want without any liquidity issues.
3. In real stocks, you have to wait for someone to buy/sell when you want to enter or exit your position. In CFDs, you don't have to, it is almost instant.

My question is, if CFDs have no liquidity or other issues as mentioned, why don't everyone trade CFDs instead of stocks?
 
Your logic is very flawed.

Without cash stocks there could be no CFDs.

When you buy a CFD through a broker that broker will buy the cash stock so you are long the CFD and he is long the stock. CFDs therefore have as much or as little liquidity as the underlying cash stock.

You also don't have to 'wait' for people to buy/sell a cash stock as there is always a bid and offer available. Execution is therefore always instantaneous.
 
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MarketDiver said:
I am not familiar to CFDs so forgive me for the questions that I am going to ask.

Here's why I think CFD is better than trading the real stocks.
1. CFDs have no liquidity issues, your orders will be executed almost instantly.
2. Low liquidity stocks are not scalable. You can trade the CFD of that particular stock as large as you want without any liquidity issues.
3. In real stocks, you have to wait for someone to buy/sell when you want to enter or exit your position. In CFDs, you don't have to, it is almost instant.

My question is, if CFDs have no liquidity or other issues as mentioned, why don't everyone trade CFDs instead of stocks?
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A CFD is a derivative so you still need the original shares. Also CFDs are not centrally cleared so you are exposed to counter party risk as well as any abusive practices that the bank wants to impose on you.

CFD's in the most simplistic form are basically bucket shops renamed (no practical difference between them).

And finally CFD's are not available to US traders.
 
So, does that mean for every CFD that I buy, the maximum size is dependent on the original shares availability?

For example, xyz shares average volume is ~100k, therefore my broker will not allow me to buy the shares CFD more than ~100k?
 
MarketDiver said:
So, does that mean for every CFD that I buy, the maximum size is dependent on the original shares availability?

For example, xyz shares average volume is ~100k, therefore my broker will not allow me to buy the shares CFD more than ~100k?
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Yes. But then nobody would be trading 100% of the daily volume themselves would they?

If you deal with a DMA broker you can only trade a CFD with what's on the bid-offer.

If you deal in cash shares you can only buy/sell what's on the bid-offer.

There is really no difference between a CFD trade and a cash stock trade. Both mean the cash stock trades.
 
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