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We have had CFD's in Australia for some years now.
It started off with commission free DFF (the cmc group) and then expanded
to include a few other groups.
They now all charge commissions - some are dearer than using an online
broker - and have varying terms and conditions.
You can only trade a limited number of stock - the ASX 200 and the USA top
600 I think - plus most of the indices around the world.
They have continually moved the goal posts - which has cost them many
traders - from free trades to high commissions and then increasing the
margin from 5% to 10%.
Some of this was due in part to a large loss DFF suffered on one of our
major companies - AMP - which has been investigated by our regulatory body
but no insider charges have been laid.
Other reasons while many people have ditched them are that theoretically,
and I guess practically in some cases - you are facing potentially
unlimited losses.
In addition - while some dealers use the same spread on the ASX - others
make their own book on stock - so that if there is a run on a stock, for
example, the ASX spread might be 5 cents but the DFF spread might be say 50
cents - which makes it impossible to profit in a trade.
So, for example, if you are long and the company goes into suspension or
ceases trading - you do your margin and are up for further margin calls
while the matter is resolved - it's unclear exactly how this would work.
More importantly - your funds on deposit to trade are not guaranteed in any
way or held in escrow or in trust, etc - they are aggregated and can be
applied in any way by the company - for example - to meet running costs and
to pay out on losses, etc.
Many people in Australia that trade CFD's simply don't understand or
appreciate the risk involved in holding overnight long positions without a
guaranteed stop - which costs an additional premium of 5%.
Having said that - many people are happy to take the risk and trade the
stock - particularly the US market with it's lower margin and increased
volatility (and higher risk on exposed overnight positions).
Arthur
:
>Hi John,
>
>I believe that the CFD market makers have regulatory issues with offering
>their stock-based CFD products in USA. It seems to be a European/UK
>originated trading product. Here's some
><http://www.cmcgroupplc.com/>www.cmcgroupplc.com
>www.manfinancial.com
><http://www.saxobank.com>www.saxobank.com
>http://www.igindex.co.uk/
>
>Basically CFDs are just like highly leveraged versions of the underlying
>stock. Margin is usually 5-10% (therefore leverage of 10-20x). The main
>benefits of CFDs include ease of going short (although this isn't too much
>of a problem for US stocks), leverage and little or no commission.
>
>Best regards,
>Richard Dale.
>Norgate Investor Services
>- Premium quality Stock, Futures and Foreign Exchange Data for
> markets in Australia, Asia, Europe, UK & USA -
><http://www.premiumdata.net/>www.premiumdata.net
>
>
>----------
>From: john gibb [mailto:jgibb1@xxxxxxxxxxxxx]
>Sent: Monday, 12 April 2004 11:01 AM
>To: amibroker@xxxxxxxxxxxxxxx
>Subject: Re: [amibroker] Where are you from, Part Deux
>
>Hi Richard,
>
>Where can I get more info on CFD trading and do you happen to know if it
>is it available to us folks in the US?
>
>thanks
>
>-john
>
>
>
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