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Old 06-10-2009, 10:19 AM   #1

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What is a CFD?

I had never heard of CFDs before, so:

http://en.wikipedia.org/wiki/Contract_for_difference
http://glossary.reuters.com/index.ph...for_Difference
http://www.investopedia.com/terms/c/...ifferences.asp
http://www.contracts-for-difference.com/

Makes sense to me!
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Old 06-10-2009, 10:26 AM   #2

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Re: What is a CFD?

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Originally Posted by diablo272 »
I had never heard of CFDs before...

because CFD are not permitted in the United States, most Americans are not familiar with it.
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Old 06-10-2009, 11:06 AM   #3

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Re: What is a CFD?

In the UK where they originated (or where they were adopted early at least) they seem to be largely superseded by spread betting which has tax benefits over CFD's
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Old 06-24-2009, 10:55 PM   #4

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Re: What is a CFD?

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Originally Posted by BlowFish »
In the UK where they originated (or where they were adopted early at least) they seem to be largely superseded by spread betting which has tax benefits over CFD's
leveraging for trading cfd's sound in many ways like the private capital trading firms (not brokers) in the US that offer 10x margin on small deposits.
I have a link to one if anybody cares.
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Old 09-29-2009, 09:07 AM   #5

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Re: What is a CFD?

It should be pointed out that CFD's are not allowed to be traded by US residents (& citizens?), which is kind of odd given they rule trading in many other markets in the world now and replaced much of the need to trade options for leverage, so in part it's to protect the options market revenues in the US I guess, and protect them from those "evil derivatives that will be the end of the world", CDO's are much safer . Given the current overreaction on regulations on trading in the US it's not expected CFD's will get the green light anytime soon as the leverage gives the potential to stuff up in spectacular fashion if you get it wrong, as in futures.

As a trader CFD's (not to be confused with spread betting which didn't take off outside the UK) are a revolutionary product that allow risk management strategies unavailable with any other trading instrument, although each broker varies in this regard so you need to use the appropriate broker for the type of strategy you are looking to achieve.

Many CFD brokers are promoting themselves to be FX brokers these days, which they have always offered but there is no real edge in using them verses a normal FX broker who specializes in that field, the real advantages are in what you can do with equities trades, and the ability to trade multiple global markets from a single broker account.

Due to the carry costs on the long side which are calculated on the entire position as it rises and falls in value, not just the loaned portion as with a margin loan, a different strategy needs to be employed from other equities trading instruments to offset this cost or there is no benefit, and probably a cost, in trading CFD's (although using the leverage to free up capital for other trading instruments has some benefit, but marginal in this case as there are other ways to do this).

It is a BRILLIANT instrument if you can get your hands on it as a professional trader, but you have to trade it aggressively and employ all the risk management tools it affords you.

As many of the brokers are just market makers they can adjust the tick value on instruments such as S&P, Dow, Oil & Copper to make it more tradable for small accounts as well instead of trading the full futures contracts or mini's. The downside to market makers is they can be a %%$##^&&^$## pain to deal with sometimes, and the data on their own charts is not to be trusted in many cases (I use eSignal, Amibroker and other data sources and just execute on their platforms, and dispute any "odd" prices).

But if you can swing a way to trade them, do so! You won't find many trading educators that understand them though or how to really get the big gains out of them, it's still a niche very much at this point in time, and your results are only limited by your creativity with your money management strategies.

Options still have their place as they have unique strategies like straddles & spreads, but the expiry sucks from a straight direction trade point of view, especially if you stuff up the volatility component.

I <3 CFD's, I simply couldn't imagine how my trading plan could exist without them!

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Old 11-06-2009, 06:32 AM   #6

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Re: What is a CFD?

yeah CFDs are originated form the U.K but not many people here do it bcoz we have to pay TAX, instead people do something called Spread Betting.
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Old 06-09-2010, 12:06 PM   #7
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Re: What is a CFD?

Can someone please post a chart of spread betting?
 
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Old 06-09-2010, 06:40 PM   #8

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Re: What is a CFD?

The charts are the same as the instrument you are betting on. It's pretty much like the FX bookies. You bet X pounds a tick/point on the movement of a financial instrument. So for example I could take a long bet on the ES at 5 quid a tick. The spread bet company will be the counter party though may chose to hedge their book in the real market if it gets too lopsided.
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