Contracts for difference

Beginner Questions
1

hello guys,

can you please tell me a good bit of information about contact for differences.

i need to know what the types of orders work e.g market orders limits orders etc.

thanks

2

Hi,

I’m kind of suprised that nobody has answered your question.

Anyway: order placement options for CFD’s (‘Contracts For Difference’) are exactly the same as for spot forex. There are limit orders, stop orders, OCO (‘Order Cancels Order’), and market orders (obviously) and all of these orders can be placed as GTC (‘Good Till Cancelled’) or DAY (will be closed / removed if not executed at the end of the trading day). Deltastock has also (ironically just yesterday in the latest release of the trading platform) added a new order type i.e.‘Good after Time Order’ (the order will only be placed at a certain date and time as instructed by the client).

That’s about it really. Do remember though: there are usually commissions payable as well as the spreads and the commissions payable are charged BOTH ways i.e. when you open the position AND when you close the position so you need to allow for this and for this reason: it will not pay you to trade a small amount of units because if you consider that you may pay a TOTAL commission of, for example, $5.00 ($2.50 X 2) you need to be making a fair amount of money per point movement just to cover the commission let alone make a profit. Also: the commissions usually vary depending on the type of CFD. There is usually a minimum standard commission charged up to a certain amount of units and thereafter it increases on a sliding scale according to the position size.

I’m sure that there are brokers that do not charge commissions at all. As a matter of fact I actually DO know of one but they’re nothing short of an outright scam and a ‘bucket shop’ (and the sheer irony is that they just won an award at the Forex Expo in Russia this year so I don’t know who does the voting but I can tell you it sure ain’t their clients)!!! LOL!!!

Regards,

Dale.

3

Thanks for the reply. When I made this post I knew nothing about cfds but now I know alit about them.

4

No problem. Any time.

If you want my opinion: it’s ‘the way to go’ especially trading the major indices and CFD’s on stocks and commodities etc. in spite of the commissions payable. In my opinion they ‘behave’ better than spot forex and you’ll find that most of the (let’s call them ‘classic’) trading system were designed by equities and commodities traders and most of them don’t lend themselves well to trading spot forex (but I’ve been pretty vocal about this around here so I’m not going to go into detail here and obviously it’s also not my intention to upset any forex traders of course i.e. it’s all down to a matter of personal choice is all I guess).

Anyway: I sincerely hope things go well for you.

Regards,

Dale.

5

There’s a question that’s bothering me.

Here it’s if I were to go short, how long do I have to repurchase the shares back. I’m looking at the timescale here. A week to a month or less than that.

Thanks.

6

Hi,

NOW I think I know what’s confusing you!!! LOL!!!

I think you’re familiar with dealing with the physical purchase of shares (I seem to remember that you mentioned something about this on your other thread). CFD’s (for want of a better explanation) ‘mimmick’ the price of the underlying asset (in your case the underlying asset would be shares in a particular company like Citigroup as an example). In other words: you’re not ACTUALLY buying or selling the physical shares so in order to short sell a stock you don’t have to first own (or borrow) the physical share (as would / SHOULD be the case with a stockbroker like Goldman Sachs for example). That aside: most of the other common rules apply e.g. if there is an uptick rule in place on a particular stock i.e. the price has to move up a certain amount before the stock can be shorted then the same will apply to your CFD. The same applies if there is a limit move in place i.e. trading will be halted for a certain period of time (exchange dependant) if the price of a stock or a commodity or an index moves by a certain ‘extreme’ amount in a given time (the idea being to give traders time to ‘calm down’ and it’s an effort to avert ‘panic’ although in the past I don’t think that this has worked too well i.e. once the first limit move has been reached and trading resumes traders simply continue to short again, which is normally the direction of the move, untl the next limit move has been reached and so on and so forth)!!! LOL!!!

So to answer your question: you can go long or short and stay long or short for as long (no pun intended) as you like. The only time this will not apply is if you are trading CFD’s on certain futures contracts that expire at certain times (this would not apply to CFD’s on individual stocks by the way) e.g. there are different Sugar contracts that expire at different times so your position will be automatically closed by your broker on the expiry date of the contract. Some brokers will close the position on the expiry date of the contract and automatically re-open your position on the new contract (but this is normally the client’s choice as to whether or not the position is re-opened on the new contract).

Here’s a pretty concise explanation (sometimes I tend to ‘go on’ a bit I guess):

CFD Trading | CFDs on Shares | Indices | Futures | ETFs

Regards,

Dale.

7

When I started looking into CFD’s the first thing I was told was that I wasn’t buying physical shares and that was confusing. LOL

But it’s true apart from that the same rules still apply.
T

Thanks for the superb answer to my question I’ll give Avafx a call and ask them the same question aswell as if they’ve any hidden charges.

I’m using Avafx because they’re headquarters are Dublin, were I live. I’ll look into deltastock is becaues they seem to have a wide variety of cfd’s from America to Europe to Asia.