Investing Thread

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81

[quote]smcm wrote:
PSlave wrote:
duke wrote:
(contracts for difference)

Instead of buying the actual shares, you buy a contract for the shares at the current share price and pay around 3% to 10% of the current share value. For example if xyz is trading at $10 and you think it’ll go up, you buy 1,000 contracts for say $0.50c each (Costing $500 instead of $10,000 for the shares) and if you are right and the share goes up to say $11, then you can sell the contract back, making $1,000 profit on the deal for your input of $500, instead of having to outlay $10,000 to make $1,000. In percentage terms the return on the CFD is 200%, the return if you bought the shares is 10%.

Do CFDs have a set date on which they have to be exercised? I’m assuming the price of the CFD is set by the seller?

If so, is a CFD the same as a call option?

The downside, as I understand it (I don’t trade in options so please correct me if I’m wrong!), is that if, in your example above, XYZ drops to $9, you would be out your money.

CFD’s are not options (no expiry). Exit the trade similiar as for stocks. You have a set stop loss order, limit order, or exit manually. On the price drop (as you mentioned) you would be out money on “paper”, not until the trade is closed is the loss or profit booked. Your position maybe automatically liquidated by the broker if your available equity drops below a given amount. (I trade forex, but had considered CFDs)

CFD is basically trading a stock as a commodity. That is you buy or sell on leverage and not the full face value. Different than an option to buy/sell at a target price that has a time limit(expiry).[/quote]

So in essence, CFD is like using margin on steriods? Instead of 2x your capital, you control 20x or whatever.

Sounds like a great way to make big gains with little money, assuming you are damn good.

82

[quote]nephorm wrote:
Ren wrote:
I’m 22 and right now I spend my time trying to max out my IRA for the year ($350 a month right now), and then I put $1000 a month into a money market account that I get 6% return on. That money is there for when I move into my own place, otherwise I’d be investing it in something with a higher return.

Hey, in Ohio, you’ll have a downpayment in what, six months?

Anyway, it’s impressive that you have that much disposable income, and that you are saving so much.[/quote]

I’m 21 and saving all I can. I’m taking home about $2400 a month, and spend only about 200 of it. I’m still living with my mom, and I am very tight with my money. Although I do pay my car insurance, gas, food. (Car was bought with cash, so no payment.)

It’s amazing to me how all my friends are so quick to spend their money. They are literally slaves to commericalization. It feels great to have a nice savings, and never have to worry about money.

I’m thinking of opening a roth ira, but I might wait so I can get my daytrading account sooner.

As for 5-6% a year, sure it’s better than nothing, and zero risk, but it’s basically nothing unless you have a good amount of cash, like over 50k.
Learn the markets and buy good stocks at support.

83

[quote]KiloSprinter wrote:
smcm wrote:
PSlave wrote:
duke wrote:
(contracts for difference)

So in essence, CFD is like using margin on steriods? Instead of 2x your capital, you control 20x or whatever.

Sounds like a great way to make big gains with little money, assuming you are damn good.[/quote]

…you could express it that way if it suits your understanding of the situation. A recent example…
I bought 5,000 CFD’s on a stock rumoured to be a take-over target. The stock would have cost me over $20,000 but I paid only $1,100 for the CFD’s.

The stock jumped up by $0.90c ($4.30 to $5.20) and I sold, giving me a $4,500 profit for a $1,100 outlay.
I still would have made the same profit by buying the $20,000 worth of stock, but obviously the CFD trade is a huge % return compared to buying the stock.
But as with everything, there are risks.