CFDs Contracts for difference

[whiteheron]

There seems to have been a lot of promoting recently in regard to CFDs --- reading the blurb indicates that for a relatively small sum invested you can control a very large investment and make serious money !

As with most things that sound too good to be true they invariably are , and I suspect that this is the case with CFDs

I have no doubt that it is feasibly possible to make good money IF you bet the right way but it seems to me that you can much more easily lose your shirt and more

With shares you actually own a portion of a company , not so with various derivatives

It seems to me that the issuers of CFDs etc are the ones who will invariably profit and that the investor will invariably lose out
( as it seems that the contract will ultimately produce a winner and a loser , pretty much the same as any other type of bet or wager )

Do I have it right , or is there some factor of which I am unaware and have not taken into account ?
The issuers will no doubt have themselves well protected so that they do not lose
So where does this leave the investor ?

Any thoughts and comments will be most appreciated , especially from those who have actually invested in CFDs ( or similar ) either profitably or unprofitably

[whiteheron]

Thanks aspex

As they are only available in large liquid securities they are not available to me as
I only invest/trade in developing resource companies --- companies that are producing or very close to producing with ( hopefully ) a lot of upside

[whiteheron]

aspex

My investment holdings
AWE
BMO
CUE
EXS
MCR
MMN
QGC
SMO

By the way , I couldnt get the link to the Sharechat site to work , said "no link specified" and as I am not too savvy about computers once I get out of my comfort zone I am lost

[Ricardo]

aspex

just read your most recent post, then did a search on CFD, only to find there is not much on this site. You have clearly been in the game longer than most here, and if you have 3 accounts must be serious.

With the arrival of CMC here, I expect CFD's trading will start to catch up with the UK / Australia. I have just opened an account with them.

Could you give us an indication of how you have found trading CFD's compares with trading shares. I don't expect you to reveal your net worth or annual income, but just relative risk/reward and return for capital risked / your time input etc. How much of your capital would you risk on any trade, and what would be your worst drawdown. Are you making a living at it?

Don't expect you to write a book, but I would really appreciate input from someone that is doing it, as oppossed to testimonials from the provider. Thanks.

[whiteheron]

aspex

Thanks --- all shares listed by me are are Australian

Think I will keep with shares at present
I have an investment account and a trading account , all but one of my shares are Australian

I think that CFDs may be a bit too speculative for my liking but will try to get to grips with them so that I undesstand all aspects , especially the downsides

[Ricardo]

aspex

Thanks for that. I will begin very cautiously. Logically, if you have a system with positive expectancy for shares, then doing the same thing should work with CFD's. However I suspect with only 5% down sticking to the rules could be a magnitude harder.

[port hills]

I'm looking for someone in Christchurch or surrounding area who trades CFDs that would be happy to get together for a chat and show me the software they use etc.

I'm interested in getting started trading these but to date have only traded shares.

Cheers

[skinny]

Whiteheron, my broker offers CFD trades on aroun 400 listed ASX stocks, including from your list above AWE and MCR. A handful of NZX cross-listed stocks (TWR, TEL, LNN, FPA and FBU) are also available.

[Mwithy]

Hey Folks,

On the topic of CFDs, is anyone aware of some detail of the tax implications. Reason i ask is that i trade shares relatively actively but have escaped the attentions of the IRD thus far. How do they treat CFDs. By that i accept that if i was to trade CFDs i would be liable for full income tax on any gains. But what are the implications re my traditional portfolio.

Cheers,
Matt

[Ricardo]

Mwlthy, if you search this site you'll find tax implications of most strategies well covered. My interpretation for your question - if you keep your traditional share portfolio "separated" as far as records, broker and/or bank accounts etc, nothing should change.
Your CFD trading would be a separate (taxable) activity.

However, assuming your current share activites don't feature on your tax return (if you do one), by trading CFD's it is much more likely that eventually you will be audited.
Then IRD's interpretaion of whether you were holding your shares for capital preservation or with the intention of making a profit may differ from yours.

If you start hedging positions in your traditional account by taking positions with CFD's then I believe it could be quite difficult to convince IRD your share activity was not undertaken with the intention of making a profit. If the level of activity was low enough you might get away with it.

As CFD's are quite new to NZ, IRD may still be a bit short on policy. Researching CFD's I was interested to see that Spread Betting is very similar to CFD's and is popular in the UK because it is classified as a "bet" and hence is not taxable.