short term uncertainty - wednesday, page-26

Martin Gifford

CFDs

My understanding, probably wrong, goes like this.

When you buy(sell) a CFD with a provider, they offset the risk of your "bet" with them by purchasing(selling) the stock on the cash market. (Or delta equivalences, or OTC with another party).

If there is something about the cash market that they feel creates risk, they will expect to be remunerated for that. For example:
- If the spread in the cash is wide, they will offset that in the b/a they offer you.
- If the market is volatile, or illiquid, they will also offset that risk by creating a bigger spread for you to trade at.

Maxi48 basically correct. You could also drop the black dog faeces into the CFD providers letter box too...make sure it's fresh....

The (dangerous) irony with CFD providers is that when you need their shorting capabilities the most (one of the main selling points), then that is the time that they represent the most counterparty risk to you.

I had an MFG account in Aus, and when the US parent did naughty things, they locked up my money for over a year and still haven't given it all back.

Also be aware that some of the CFD providers have a common "back end" provider. Commsec used to use MFG. I think CMC provides the back end for a number of other retail providers.

Most of the accounts used for CFDs are not bank deposit guaranteed either..the bozo on the call desk will tell you that it's "in a segregated account" but this means nothing. They can still access the money (albeit illegally) and you have no recourse for recovery.

All off the top of my head DYOR please.

take care.