ksama
2008-Sep-19, 02:23 PM
Just wondering if anyone here trades CFDs? I always find it odd that a lot of people just don't seem to be very interested in CFD, and I can't understand why. If you don't know what CFD is, I copied this from Wikipedia.
A contract for difference (or CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset (http://en.wikipedia.org/wiki/Asset) and its value at contract time. (If the difference is negative, then the buyer pays instead to the seller.) For example, when applied to equities, such a contract is an equity (http://en.wikipedia.org/wiki/Stock) derivative (http://en.wikipedia.org/wiki/Derivative_(finance)) that allows investors to speculate on share price (http://en.wikipedia.org/wiki/Share_price) movements, without the need for ownership of the underlying shares
Contracts for difference allow investors to take long (http://en.wikipedia.org/wiki/Long_(finance)) or short (http://en.wikipedia.org/wiki/Short_(finance)) positions, and unlike futures contracts (http://en.wikipedia.org/wiki/Futures_contract) have no fixed expiry date, standardised contract or contract size. Trades are conducted on a leveraged basis with margins (http://en.wikipedia.org/wiki/Margin_(finance)) typically ranging from 1% to 30% of the notional value for CFDs on leading equities.
To me, CFD offers the following advantage.
* be able to go long (when you predict the market is going up) or short (when you predict the market is going down), allowing you to make money either way.
* hedging
* leveraging
* stop loss (some CFD provider offers guaranteed stop loss, great for volatile market as we're seeing now)
I've had mates argueing CFD is higher risk, while I agree to that, due to leveraging. I believe proper risk control using stop loss (or even guaranteed stop loss) can very much minimise the risk.
A contract for difference (or CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset (http://en.wikipedia.org/wiki/Asset) and its value at contract time. (If the difference is negative, then the buyer pays instead to the seller.) For example, when applied to equities, such a contract is an equity (http://en.wikipedia.org/wiki/Stock) derivative (http://en.wikipedia.org/wiki/Derivative_(finance)) that allows investors to speculate on share price (http://en.wikipedia.org/wiki/Share_price) movements, without the need for ownership of the underlying shares
Contracts for difference allow investors to take long (http://en.wikipedia.org/wiki/Long_(finance)) or short (http://en.wikipedia.org/wiki/Short_(finance)) positions, and unlike futures contracts (http://en.wikipedia.org/wiki/Futures_contract) have no fixed expiry date, standardised contract or contract size. Trades are conducted on a leveraged basis with margins (http://en.wikipedia.org/wiki/Margin_(finance)) typically ranging from 1% to 30% of the notional value for CFDs on leading equities.
To me, CFD offers the following advantage.
* be able to go long (when you predict the market is going up) or short (when you predict the market is going down), allowing you to make money either way.
* hedging
* leveraging
* stop loss (some CFD provider offers guaranteed stop loss, great for volatile market as we're seeing now)
I've had mates argueing CFD is higher risk, while I agree to that, due to leveraging. I believe proper risk control using stop loss (or even guaranteed stop loss) can very much minimise the risk.