CFD's & Other Ways to Trade Fiancial Markets

[Dallas]

New thread to carry on the discussion on CFD's and other ways to trade the financial markets of Forex, Stocks, indices and commodities

[marksmeets302]

Sorry Dallas, I just saw this after making a new post in the oil/crude thread. Guess it better belonged in here.

[Dallas]

Personally I would avoid CFDs, as the interests of the CFD platform and yourself don't necessarily align; you are trading against them. The counterparty risk is also substantial - with a CFD you don't own anything (it's a bet so to say).

For smaller portfolios I'd look into exchange traded commodities like DBO. You can buy and sell them just like stocks. Using a broker like interactive brokers you can buy and sell them for something like $1 commission for 200 lots. Many oil ETCs track a mixture of oil futures with different expiration months, so you don't have to roll them yourself. Basically, you can hold a position forever. The drawback is that this rolling has some hidden costs: often the further away futures price is higher than the nearer. This gap is in a sense what you pay for keeping a position. This can add up quite a bit. If you are thinking about holding a long term position in oil, be warned that it is almost impossible to achieve results similar to the oil spot price. In other words, if you think now is a good time to buy and oil goes from $30 back to $100 in a year or two, don't expect to make $70. Not that strange given that if you actually held the barrels you'd have to pay for storage as well, finance it etc.

If you want to control 1000 barrels of oil, the cheapest way is by buying a future. This is not for small size portfolios though. With a future you also don't own anything, but it is highly regulated and transparent. Your money is insured etc.

Just to come back to what you put on the Oil thread about CFD's do you mean you would avoid them under any circumstances or do they suit a purpose in some circumstances?
I started using them when i got into forex a few years ago but as i said on the Oil thread i only dabble with odd trades here and there usually with positions for a few weeks / month or two at most or some occasional intraday trading at certain times on forex.

Is there any other ways that would suit what im using it for?
I am also aware that there has been cases where platform companies have forced people out of positions but so far its never happened to me maybe partly as i only have a few K in each of my accounts so probs only seen as a tadpole

[gazuty]

When you trade with a cfd provider you take a position against the provider and are dependent on their credit worthiness to pay you back. They also set the price you trade out at (even if they reference another market).

Generally CFD and fx providers categorise their clients into winners and losers. They hedge trades for winners and collect on the losers. The fees, spreads and pricing make it similar to betting at a casino. It's very difficult to jump over the weighting in favour of the house.

[marksmeets302]

Gazuty said it all

Another option is to buy a turbo or sprinter on oil, if you really need the leverage. Drawback of this is that the interest component that is build into these instruments to finance the underlying is usually fairly high. In other words every day this instrument will decline a little bit (but too much) in value. Another weight to overcome.

[Dallas]

Thanks for your thoughts and replies Marksmeets302 & Gazuty

Do wither of you have some recommended sites for me to look into on how and where to buy these turbo's or sprinter's
Most of what i get when googling is related to the Merc vans and vehicle turbos and the one site i found turbotrade.com seems to have a lot of dead links on the page.

[marksmeets302]

Here's a prospectus:
http://www.abnamromarkets.nl/uploads/tx ... versie.pdf

This must be old, because abn stopped issuing turbos several years ago; I believe they sold that business to goldman. Nevertheless, the information should still be accurate.

Turbos are listed on the warrant segment of euronext. Other issuers have the same products with different names (it's a trademark thing): sprinters, boosters, speeders.

[Dallas]

Thanks again Markmeets for that info much appreciated

[sam8080]

Please excuse my ignorance, but what then makes CFDs different than binary options like: http://www.binaryoptionstrategy.eu/?