Cfd's

MichelRichmont

Hi there -

I've been reading up on CFD's recently ; they're very popular at the moment and many dealers are offering them.
I was very interested in buying a few contracts until I learned that they are normally opened and closed within the dealing day.
You can hold them for longer, but there are interest charges - do these charges generally outweigh the possible gain of a longer position?

Has anyone got any experience with them?

I generally take the long view, and lacking sophisticated day trading software etc(and not being a day trader - I check prices at most 2/3 times a day at work!)

Thanks
Michel:D

dunkamania

check out the sticky on investing options or follow this link

http://www.boards.ie/vbulletin/showthread.php?t=251576

Hitchhiker's Guide to...

MichelRichmont wrote:

Hi there -

You can hold them for longer, but there are interest charges - do these charges generally outweigh the possible gain of a longer position?

Just on the answer to this specific question

- the interest rate charge should be cost neutral, and is just suggested as the appropriate charge based on an option-pricing model (such as Black-Scholes).

In general it shouldn't matter whether you hold them for long - or - short term, as the charge for holding longer will (on average) counteract the benefit of increased volatility in the underlying share price.

Of course, this depends on what the specific charge is. It may be too high.

Hitchhiker's Guide to...

one other issue -

as per the sticky - CFD's are phenomenally risky, and really should only be invested in when you have mastered the basic risk of general stock market investing.

of course, that is what also makes them fun!