20 March 2013

CFD Trading : More Questions

  • Most grateful to the kind reader for providing the information I was looking for in the earlier post on AAPL/CFDs. I have more questions on trading costs.
  • Have pulled up buy and sell CFD tickets in the attached screenshots, for a nominal trade value apx US$45,000.
  • BUY : US$20 per ticket + US$4.04 per day interest charge for funding. Is that correct?
  • SELL : US$20 per ticket + US$3.03 interest + US$1.29 borrowing cost per day. Correct?
  • If I am short a CFD, should Saxo not be paying me interest instead of charging me?
  • Clarification from Saxo
  • Addendum : 2nd screenshot = clarification from Saxo. Can't say I agree with the Libor-2.5% on shorts = pay interest (since US rates near zero) for shorting though.


brownrice said...

hi TS, I've been reading your blog for years now and although I occasionally comment I've always done so anonymously. My "moniker" is brownrice.

Re: your post, yes they are charging you $20 transaction charge & interest regardless of whether you are long or short the CFD, and if you're going short then you also incur a borrowing cost. Honestly I always assumed regardless of where LIBOR was trading that you would never receive interest if you are short the CFD because this is a synthetic instrument and saxo is providing you a valuable service by letting you trade on margin. I always figured you normally only earn interest on shares if you own the shares and allow the bank to lend it out to others to short the stock. Not to be confused with trading cash FX where you can sometimes earn interest on carry, but that's because in cash FX you actually have the real position and not a synthetic instrument.

The CFD is a creation of the bank, so technically every bank has their own CFD and technically they could let the CFD trade off market or widen the spread on you. For example if you were a whale and they knew you had an outstanding position and wanted to square it up then they could skew the price on you or spread you out. And you would have no choice but to deal because the CFD is a saxo bank CFD and the position cannot be closed anywhere else. But in normal trading the bank would not do this since it is bad business, and we are small-timers.

I would be confident trading Saxo CFDs for as long as I felt Saxo wasn't going to go the way of MF Global. I trade the CFDs from time to time primarily for the leverage because trading stocks unleveraged is too slow, and as I don't want to keep an excessive amount of cash with saxo.

Good luck!

Taichiseal said...

Brownrice - thanks for your helpful comments. Completely agree with you now on the costs incurred regardless of being long or short CFD. Should have thought it through a bit more.