Is CFD a viable option for long-term trading?
Yes it is viable as long term!! BUT... The average yearly return for the Nasdaq-100 for the last 20 years is 15%!! If you subtract the financing cost for the CFD (my broker is 4%) it gives you about 11%. You can add 1% dividend yield to that. That's 12% return!! As you earn more you can compound in more contracts. Make sure you keep your buffer. Soon enough you can have a very large exposure. The market right now is in euphoria. But a Trump impeachment can be very dangerous thing.. Happy investing!! CFDs should not be used as a buy and hold strategy (which is risky enough doing with shares directly). However, with proper money and risk management and the proper use of stop losses, a medium term strategy is very plausible.  I was using CFDs in the past over a short time period of usually between a couple of days to a couple is weeks, trying to catch small swings with very tight stops. I kept getting wipsawed due to my stops being too tight so had too many small loses for my few bigger wins. And yes I lost some money, almost $5k in one year. I have recently started a more medium term strategy with wider stops trying to catch trending stocks. I have only recently started this strategy and so far have 2 loses and 3 wins. Just remember that you do get charged a financing fee for holding long position overnight, buy for short position you actually get paid the funding fee for overnight positions. My broker charges the official interest rate + 2.5% for long positions and pays the official rate - 2.5% for short positions. So yes CFDs can be used for the longer term as long as you are implementing proper money and risk management and use stop losses. Just be aware of the implications of using margin and all the costs involved. No, CFD is not viable as a long term trading strategy.  You have a minimum margin to maintain, and you are given X days to top up your margin should you not meet the margin requirements. Failure to meet margin requirements will result in a forced sell where you are no longer able to hold onto the stock. A long term trading strategy is where you hold onto the stock through the bad times of the company and keep it long enough to see the good times. However, with CFD, you may be forced to sell before you see the good times. In addition, you incur additional lending charges (e.g. 4%-6%) for the ability to leverage. it is pretty much the same as a normal margin loan but cheaper because you don't own the underlying share.the if the margin is $1000 at 5% you could borrow $20000 in total so the actual amount would be $19000 in total that you would have to pay interest on so at the moment it is 5.1% which is $19000x5.1% /365 days =$2.66 a day and if the share price rises you don't pay extra in interest costs unless you have borrowed more.it still stays at 2.66 a day until you have sold the shares Something really does seem seedy that if I invest $2500, that I'll make above 50k if the stock doubles. Is it really that easy? You only buy or sell on margin. Think of when the stock moves in the opposite direction. You will loose 50k. You probably didn't look into that. Investment will vanish and then you will have debt to repay. Holding for long term in CFD accounts are charged per day. Charges depends on different service providers. CFD isn't and should not be used for long term. It is primarily for trading in the short term, maybe a week at the maximum. Have a look at the wikipedia entry and educate yourself. Yes it is viable but uncommon. As with everything to do with investment, you have to know what you are doing and must have a plan. I have been successful with long term trading of CFDs for about 4 years now. It is true that the cost of financing to hold positions long term cuts into profits but so do the spreads when you trade frequently. What I have found works well for me is maintaining a portfolio that is low volatility, (e.g. picking a mix of positions that are negatively correlated) has a good sharpe ratio, sound fundamentals (i.e. co-integrated assets - or at least fairly stable correlations) then leveraging a modest amount.
Thanks for your reply. I’m not familiar with the term “Held-For-Trading Security”. My securities are generally held as collateral against my shorts. To clarify, I am just trying to track the “money in” and “money out” entries in my account for the shorts I write. The transaction is relatively straight forward, except there is a ton of information attached! In simple terms, for the ticker CSR and short contract CSRUQ8, the relevant entries look something like this: There are no entries for expiries. I need to ensure that funds are available for future margin calls and assignments. The sale side using covered calls is as involved. I know I can not trade futures realistically (I never claimed I could). All I wanted was some exposure to commodities.  If I could just trade many of these things in an ETF like GLD or XLV, I would have done that.   On the topic of margin, I appreciate your explaining that to me. I admit readily that I could never invest in futures straight, but I would like to get into commodities and other types of investments. I have tried to look for value in the market, but I have not found many things I would put my money in. I have gone as far as to look through OTC ADRs to find some foreign value, and I found nothing. I just want to be able to trade in any market, and I would consider shorting, but I don't like to be too risky. I want to go long on positions, and it seemed like commodities may be a good speculation to LOOK INTO. Taking rough rice as an example, there are millions (if not billions) of people who eat rice to survive. People will always need oil to fuel their cars. People will always need electricity. So I guess what I am trying to do is look into things that allow me to profit, regardless of where equities are going. The only thing I want to do is trade the options of the futures, not the actual futures themselves. I hope I did not confuse you. If I can earn even $20 from buying an option at a lower price and selling higher, it would allow me to have a greater breadth of tools to use when the market may be overvalued. "There are some useful answers here, but I don't think any of them are quite sufficient.  Yes, there are some risks involved in CFD trading, but I will try and give you information so you can make your own decision. Firstly, Cyprus is part of the EU, which gives it a level of credibility.  I'm not saying it's the safest or most well regulated market in the world, but that in itself would not particularly scare me away.  The far more important issue here is the risk of using CFDs and of eToro themselves. A Contract for Difference is really just a specialization of an Equity Swap.  It is in no way like owning a real stock.  When you purchase shares of a company you own a real Asset and are usually entitled to dividends and voting rights.  With a CFD, what you own is one side of a Swap contract.  You have a legal agreement between yourself and eToro to ""swap"" the return earned on the underlying stock for whatever fees eToro decide to charge.  As already mentioned, CFDs are not available to US citizens. Equity swaps have many benefits in financial markets.  They can allow access to restricted markets by entering into swaps with banks that have the necessary licenses to trade in places like China.  Many ""synthetic"" ETFs use them in Europe as a way to minimize tracking error as the return is guaranteed by the swap counterparty (for a charge). They also come with one signficant risk: counterparty credit risk.  When trading with eToro, for as long as your position is open, you are at risk of eToro going bankrupt.  If eToro failed, you do not actually own any stocks, you only own swap contracts which are going to be worthless if eToro ceased to exist. CFDs also have an ongoing cost to maintain the open position.  This makes them less suitable for buy and hold strategies as those ongoing costs will eat into your returns.  It's also not clear whether you would receive any dividends paid by the stock, which make up a significant proportion of returns for buy and hold investors.  eToro's website is fairly non-committal: eToro intends to offer a financial compensation representing the dividends which will be allocated on stocks, to the extent such dividends shall be available to eToro. All of these points expose what CFDs are really for - speculating on the stock market, or as I like to call it: gambling.  If you want to invest in stocks for the long term, CFDs are a bad idea - they have high ongoing costs and the counterparty risk becomes significant.  Wait until you have enough money and then buy the real thing.  Alternatively, consider mutual funds which will allow you to purchase partial shares and will ensure your investment is better diversified across a large number of stocks.  If however, you want to gamble and only keep your position open for a short time, these issues may not be of concern to you. There's nothing wrong with gambling, it can be fun, many people gamble in casinos or on football matches - but bear in mind that's what CFDs are for.  CFDs were in fact originally created for the UK market as a way to avoid paying capital gains tax when making short term speculative trades.  However, if you are going to gamble, make sure you're not putting any more than 1% of your net worth at risk (0.1% may be a better target). There are a few other ways to take a position on stocks using less money than the share price: Fortunately, eToro do not allow leveraged purchase of stocks so you're reasonably safe on this point.  They claim this is because of their 'responsible trading policy', although I find that somewhat questionable coming from a broker that offers 400:1 leverage on FX pairs. One final word on eToro's ""social trading"" feature.  A few years ago I was in a casino playing Blackjack.  I know nothing about Blackjack, but through sheer luck of the draw I managed to treble my money in a very small amount of time.  Seeing this, a person behind me started ""following"" me by putting his chips down on my seat.  Needless to say, I lost everything, but amazingly the person behind me got quite annoyed and started criticizing my strategy.  The idea of following other people's trades just because they've been lucky in the past sounds entirely foolish to me.  Remember the warning on every mutual fund: Past performance does not guarantee future returns" "Okay, yes! That would seem to make sense. So something like a Dupire local vol model.   In the context of term structure modelling, you can also incorporate a volatility surface into the pricing of European and even exotic options (e.g. through a SABR or an LMM-SABR for exotics), which I suppose means by your criteria there are actually varying degree of ""arbitrage free-ness"" when it comes to picking a model. By that I mean there are varying degrees of what your model takes as ""given"". If it takes the market price of risk as given, it's an equilibrium model. If it takes the observed term structure as given, it's an arbitrage free model. If it takes the volatility structure as given, it's something else.  Nawalkha, Beliaeva and Soto wrote a paper called ""A New Taxonomy of the Dynamic Term Structure Models"" in the Journal of Investment Management that basically coincides with what we're saying.  So yes, it sounds right to me." "What is being described in Longson's answer, though helpful, is perhaps more similar to a financial spread bet. Exactly like a bookmaker, the provider of a spread bet takes the other side of the bet, and is counter party to your ""trade"". A CFD is also a bet between two parties. Now, if the CFD provider uses a market maker model, then this is exactly the same as with a spread bet and the provider is the counter party. However, if the provider uses a direct market access model then the counter party to your contract is another CFD trader, and the provider is just acting as an intermediary to bring you together (basically doing the job of both a brokerage and an exchange). A CFD entered into through a direct market access provider is in many ways similar to a Futures contract. Critically though, the contract is traded 'over-the-counter' and not on any centralized and regulated exchange. This is the reason that CFDs are not permitted in the US - the providers are not authorized as exchanges. Whichever model your CFD provider uses, it is best to think of the contract as a 'bet' on the future price movements of the underlying stock or commodity, in much the same way as with any other derivative instrument such as futures, forwards, swaps, or options. Finally, note that because you don't actually own the underlying stock (just as Longson has highlighted) you won't be entitled to any of the additional benefits that can come with ownership of a stock, such as dividend payments or the right to attend shareholder meetings. RESPONSE TO QUESTION So if I understand correctly, the money gained through a direct market access model comes from other investors in the same CFD who happened to have invested in the ""wrong"" direction the asset was presumed to take. What happens then, if no one is betting in the opposite direction of my investment. Your understanding is correct. If literally nobody is betting in the opposite direction to you, then you will not be able to trade. This is true for any derivative market; if suddenly every single buyer were to remove their bids from the S&P futures, then no seller would be able to sell. This is a very extreme scenario, as the S&P futures market is incredibly liquid (loads of buyers and sellers at all times).  However, if something like this does happen (the flash crash of 2010, for example), then the centralized futures exchanges such as the CME have safeguards in place - the market become locked-limit so that it can only fall so far, there may be no buyers below the lock limit price, but the market cannot fall through it. CFD providers are not obliged to provide such safeguards, which is why regulators in the US don't permit them to operate. It may be the case that if you're trying to buy a CFD for a thinly traded and ill-liquid stock there will be no seller available. One possibility is that the provider will offer a 'hybrid' model, and in the absence of an independent counter party they will take the opposite side of your bet, and then offset their risk by taking an opposing position in the underlying stock." Yes, from the point-of-view to the end speculator/investor in stocks, it is ludicrous to take on liabilities when you don't have to.  That's why single-stock options are far more liquid than single-stock futures. However, if you are a farmer with a huge mortgage depending upon the chaos of agricultural markets which are extremely volatile, a different structure might appeal to you.  You could long your inputs while shorting your outputs, locking in a profit.  That profit is probably lower than what one could expect over the long run without hedging, but it will surely be less volatile. Here's where the advantage of futures come in for that kind of structure: the margin on the longs and shorts can offset each other, forcing the farmer to have to put up much less of one's own money to hedge.  With options, this is not the case. Also, the gross margin between the inputs rarely fluctuate to an unmanageable degree, so if your shorts rise faster than your longs, you'll only have to post margin in the amount of the change in the net of the longs and shorts. This is why while options on commodities exist to satisfy speculators, futures are the most liquid. If you know what you are doing, bear markets offer fantastic trading opportunities. I'm a futures and futures options trader, and am equally comfortable trading long or short, although I have a slight preference for the short side, in that moves are typically much quicker to the down side. "There's a few layers to the Momentum Theory discussed in that book. But speaking in general terms I can answer the following: Kind of. Assuming you understand that historically the Nasdaq has seen a little more volatility than the S&P. And, more importantly, that it tends to track the tech sector more than the general economy.  Thus the pitfall is that it is heavily weighted towards (and often tracks) the performance of a few stocks including: Apple, Google (Alphabet), Microsoft, Amazon, Intel and Amgen.  It could be argued this is counter intuitive to the general strategy you are trying to employ. This could be tougher to justify.  The reason it is potentially not a great idea has less to do with the fact that gold has factors other than just risk on/off and inflation that affect its price (even though it does!); but more to do with the fact that it is harder to own gold and move in and out of positions efficiently than it is a bond index fund.   For example, consider buying physical gold.  To do so you have to spend some time evaluating the purchase, you are usually paying a slight premium above the spot price to purchase it, and you should usually also have some form of security or insurance for it.  So, it has additional costs.  Possibly worth it as part of a long-term investment strategy; if you believe gold will appreciate over a decade. But not so much if you are holding it for as little as a few weeks and constantly moving in and out of the position over the year. The same is true to some extent of investing in gold in the form of an ETF.  At least a portion of ""their gold"" comes from paper or futures contracts which must be rolled every month.  This creates a slight inefficiency.  While possibly not a deal breaker, it would not be as attractive to someone trading on momentum versus fundamentals in my opinion. In the end though, I think all strategies are adaptable.  And if you feel gold will be the big mover this year, and want to use it as your risk hedge, who am I or anyone else to tell you that you shouldn't." "How are derivatives like covered warrants or CFDs different from the bucket shops that were made illegal in the US? After reading up a little on the topic, the core difference seems to be that bucket shops were basically running betting pools, with everyone betting against the operator, whereas CFDs and similar derivatives are traded between speculators and the operator merely provides a market and checks the liquidity of participants. A CW seems to be a different matter that I'm not fully sure I understand (at least the description of Wikipedia seems to contradict your statement about not trade being performed on the underlying security). Should I worry that some regulator decides that my ""market maker"" is an illegal gambling operation? Not really. Nations with a mature financial industry (like Japan) invariably have heavy regulations that mandate constant auditing of institutions that sell financial instruments. In Japan, the Financial Services Agency is in charge of this. It's almost impossible that they would let an institution operate and later decide that its basic business model is illegal. What is possible are mainly two scenarios:" Question for peiple in the industry already! Just completed an 8 month work term at an energy trading firm as a quant  Got offered a permanent in risk doing the same thing. Salary of 70,000, so not great but can lead to a transition into trading. Question is do i put off school and take it since its permanent? Or would you go back to school knowing that you had gained great experience and try the job market after completion of the degree? Thanks also thinking of doing cfa level while in school.  Tldr: finish temaining seven classes or take a full time position where i did a student term? A CFD broker will let you open a trade on margin as long as your account balance is more than the margin required on all your open trades. If the required margin increases within a certain percentage of your account balance, you will get a margin call. If you then don't deposit more funds or close losing trades out, the broker will close all your trades. Note: Your account balance is the remaining funds you have left to open new trades with. I always use stop loss orders with all my open trades, and because of this my broker reduces the amount of margin required on each trade. This allows me to have more open trades at the one time without increasing my funds. Effects of a Losing Trade on Margin Say I have an account balance of $2,000 and open a long trade in a share CFD of 1,000 CFDs with a share price of $10 and margin of 10%. The face value of the shares would be $10,000, but my initial margin would be $1,000 (10% of $10,000).  If I don't place a stop loss and the price falls to $9, I would have lost $1,000 and my remaining margin would now be $900 (10% of $9,000). So I would have $100 balance remaining in my account. I would probably receive a margin call to deposit more funds in or close out my trade. If I don't respond the broker will close out my position before my balance gets to $0. If instead I placed a stop loss at say $9.50, my initial margin might be reduced to $500. As the price drops to $9.60 I would have lost $400 and my remaining margin would now only be $100, with my account balance at $1,500. When the price drops to $9.50 I will get stopped out, my trade will be closed and I would have lost $500, with my account balance still at $1,500. Effects of a Winning Trade on Margin Say I have the same account balance as before and open the same trade but this time the price moves up. If I don't place a stop loss and the price goes up to $11, I would have made a $1,000 profit and my remaining margin will now be $1,100 (10% of $11,000). So my account balance would now be $2,000 + $1,000 - $1,100 = $1,900. If I had placed a stop loss at say $9.50 again and the price moves up to $10.50, I would have made a profit of $500 and my margin would now be $1,000. My account balance would be $2,000 + $500 - $1,000 = $1,500. However, if after the price went up to $10.50 I also moved my stop loss up to $10, then I would have $500 profit and only $500 margin. So my balance in this case would be $2,000 + $500 - $500 = $2,000. So by using stop losses as part of your risk management you can reduce the margin used from your balance which will allow you to open more trades without any extra funds deposited into your account. short answer: no, not to my knowledge  long answer: why do you want to do that? crypto are very volatile and, in my opinion, if you are looking for a speculative exercise, you are better off seeking to understand basic technical analysis and trading stocks based on that That's not 100% correct, as some leveraged vehicles choose to re-balance on a monthly basis making them less risky (but still risky).  If I'm not mistaken the former oil ETN 'DXO' was a monthly re-balance before it was shut down by the 'man' Monthly leveraged vehicles will still suffer slippage, not saying they won't.  But instead of re-balancing 250 times per year, they do it 12 times.   In my book less iterations equals less decay. Basically you'll bleed, just not as much.  I'd only swing trade something like this in a retirement account where I'd be prohibited from trading options. Seems like you can get higher leverage with less risk trading options, plus if you traded LEAPS, you could choose to re-balance only once per year. The fees with trading CFDs are usually lower than standard share trading. There is usually no joining fee to join a broker and start trading with them, you must be talking about the minimum required to fund your account to trade with.  What country are you in? Because if you are in the USA I believe CFD trading is not allowed there. Also there is no margin fee associated with trading CFDs. The margin is what you put in to buy or sell the CFD when you open a position. For example if you were to open a position in a share CFD where the underlying share had a price of $10 and you were looking to buy 1000 units. To buy the shares outright your outlay would be $10000 plus brokerage. If the CFD provider had a 10% margin on these share, then your initial margin to open a CFD position would be 10% of $10000 or $1000. If the price of the shares went up to $11 and you sold the shares you would get $11000 ($1000 profit), if you sold the CFDs you would get $2000 ($1000 profit). If on the other hand the shares went down to $9 and you sold the shares you would get $9000 ($1000 loss), if you sold the CFDs you would get $0 ($1000 loss). You have to be careful with margin, it is a two edged sword - it can multiply your gains as well as multiply your losses. The only fees you should be charged with CFDs is brokerage (which should be less than for share trading), and overnight financing costs. This is charged for everyday you hold a long position overnight. You should not be charge any overnight financing cost for holding short positions overnight, and if interest rates were higher you might actually get paid an overnight financing for holding short positions overnight. You may have been closed out of your bitcoin position because you didn't have enough funds in your trading account to open the size trade that you opened. From your question it seems like you are not ready to trade CFDs, you should really learn more about CFDs and the trading platform/s you plan to use before trading with your valuable money. You could probably open up a simulation account whilst you are learning the ropes and become more familiar with the trading platform and with CFDs. And if you are not sure about something ask your broker, they usually have training videos and seminars. "I hate to be the guy that says this but if you are indeed competing in the CFAI Research Challenge it is probably important. Remember you cannot use CFA as a noun (CFA's) you can only use it as an adjective ie a CFA charterholder.  As far as you question, what was provided below is pretty much all you need. Security Analysis, anything from the NYU professor and Greenwald stuff (although Greenwald, like someone already mentioned, is balance sheet focused) will get you where you need to go.  I am not sure what you mean by ""exotic valuation"" methods. As far as I know, the three most accepted and used valuation models by practitioners are the DCF model, the multiple model and the residual income model.  DCF uses short term cash flows and a terminal value discounted to today at some discount rate. The multiple model puts some multiple on earnings, book value, cash flow to arrive at a fair value. The residual model is the opposite of the DCF. One starts with the assets book value, then accrues all income generated in excess of WACC from all future periods.  Find some CFAI Level 2 books on equity and bond valuation. They pretty much cover it all.  And for a closing note, to perform well in investing and valuing companies it is not about what valuation model you use. Focus on WHY an asset should be worth what you think it is worth, not HOW you get to some valuation of that asset. Just my two cents."