Dealsforfree.com - any good?

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cablehead

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Post Number: 5
Registered: 06-2003

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Friday, June 13, 2003 - 11:51 pm:

I've been looking around for an online broker to get started with and noticed some links to dealsforfree.com.

The amount I'll have to trade starting out is pretty small - so I've been looking to go with the 10-20 bucks a pop online brokers to help trades be profitable - but I've been concerned that none of the budget brokers offer stop orders - which seem essential.

Is dealsforfree.com the answer? It looks dodgey as all hell. If it is legit - I'm concerned about having to continually pay interest to hold a position. I'm still learning what sort of trader I'll be - but I envision going in for intermediate term (1month+) trades.

If dealsforfree.com is no good, is there anyway of manually executing perdetermined stop actions while holding down a 9-5 job / keeping sane?

Cheers!
Andy.

midge

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Post Number: 119
Registered: 10-2002

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Saturday, June 14, 2003 - 12:06 am:

cablehead,

dealforfree is for experienced traders. It is a prerequisite to become one of their clients. It is not a broker. Totally different story. It is a derivative product and absolutely "legit". It simply requires a bit more knowledge.

Midge

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cablehead

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Post Number: 7
Registered: 06-2003

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Saturday, June 14, 2003 - 12:40 am:

How can they check you are an 'experienced trader'? :-)

.. ah well ..

Does anyone know of a way to cheaply and reliably achieve the effect of stop orders?

bundy

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Post Number: 58
Registered: 03-2003

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Saturday, June 14, 2003 - 08:03 am:

cablehead

You will find many threads on DFF in here - I suggest you read them if you have any questions - they have already been flogged to death and I doubt anyone has the inclination to go through this exercise again.

Midge gave you some good advice - DFF is not for you.

---
Bundy

book_ii

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Post Number: 64
Registered: 12-2002

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Votes: 0


Sunday, June 15, 2003 - 02:54 am:

FYI from

http://www.learntotradefutures.com/dcforum/DCForumID16/857.html#

Personal Investor

Spot the difference from a wild gamble

ALONG with the usual offers of cheap ink-jet cartridges, implausible surgical extensions and dodgy financial opportunities that I am constantly offered over the internet, there arrives a new class of unwanted e-mails.
These offer me the chance to learn how to get rich quickly and effortlessly by attending a conference on contracts for difference, exotic derivatives instruments that allow traders to take advantage of movements in share prices without actually owning the shares.

There are seminars at which I can be lectured by the most successful professionals in the market on the opportunities offered by this new form of investment.

No one is actualy so crass as to suggest that profits are guaranteed. But the e-mails tend to suggest that this is the kind of instrument that the professionals use, investors whose sophistication and savvy have allowed them to leave all those poor, old-fashioned stock-pickers trailing in their wake.

This is, to some extent, true. CFDs, as they are known, are best suited to sophisticated investors who know what they are doing. They are probably not best suited to private investors with limited experience of trading in the market, but this is where they seem increasingly to be sold.

In this sense, they are similar to spread betting, another game best left to those who know exactly what they are doing. Please do not think I am being patronising to the private investor; no less a body than the Financial Services Authority is known to be looking hard at CFDs, while the Department of Trade & Industry is also considering tightening the rules that govern them.

How do they work? Well, the investor “buys” the shares concerned, paying only a small deposit on their actual value in the market. The shares are retained by the broker with whom he is dealing.

The investor buys a contract reflecting the current market price of the shares, in return for a deposit, or “margin”, which might be just 5 per cent to 10 per cent of the total value. The contract runs over a given period, at the end of which the two settle up. If the shares have gone up, the investor takes his profit. But he can also make a profit if they fall, by short-selling. This means that he sells the contract before buying it.

The advantages are that you can make money even in a bear market and do not pay stamp duty on the investment. The disadvantage? Well, if the price moves against you, the losses come off that margin payment you have already made and you have to stump up more money to maintain your percentage of the original investment.

That contract has a fixed period, perhaps months. If the price continues to fall, you keep stumping up more money, unless you have set a “stop-loss” limit to prevent losses going over a given amount. And share prices can fall an awfully long way in a few months.

The converse is true. If you have gone short and the price continues to rise, the losses continue to spiral. Theoretically, if you have no stop-loss, they are unlimited.

Buy outright a parcel of shares worth £1,000 and all you can lose is that £1,000, if the company goes bust. There are few investments, save perhaps being a Lloyd’s of London name, that offer you unlimited losses. As the FSA says: “Consumers need to be aware of the instrument’s behaviour and potential losses.”

You can see how CFDs might be useful in takeover deals. Several entrepreneurs have managed to gain substantial stakes in their targets at minimal cost in this way. Shami Ahmed, the man behind Joe Bloggs jeans, is currently stalking Moss Bros by this route.

But CFDs have attracted controversy since their first outing on the London market. This was the bid in 1996 by the conglomerate Trafalgar House for Northern Electric. The City Takeover Panel issued a rebuke over their use and then ruled that CFDs must be treated as an ordinary shareholding and disclosed, to prevent future bidders from building up hidden stakes in their targets.

The panel this year heavily criticised a US fund for failing to disclose CFD trades in Regus, the serviced office company.

CFDs have much in common with spread betting, a form of “investment”, if it warrants the description, that is also being heavily marketed to ordinary punters after being used successfully by the professionals. Again, a careless or unsophisticated spread better can find himself liable to theoretically unlimited losses.

This is a difficult area with huge pitfalls for the unwary.

cablehead

Member

Post Number: 15
Registered: 06-2003

Rating:
Votes: 1


Sunday, June 15, 2003 - 09:32 am:

cheers for the great information book_ii!

I'm learning/learnt a lot from the experienced posters on these forums - and what they are telling me is for my own good; but it's good to know why not to play with fire as opposed to being told no fire for you new boy ;)

deanrosario

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Post Number: 40
Registered: 11-2002

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Votes: 0


Friday, June 27, 2003 - 02:35 pm:

Hi Book ii

I am "intrigued" by many of your comments in your recent post, but, in particular, I do not agree with your statement ...

"You can see how CFDs might be useful in takeover deals. Several entrepreneurs have managed to gain substantial stakes in their targets at minimal cost in this way. "

No, I cannot see how CFDs might be useful in a takeover deal. And I don't agree that holding a long position in CFDs gives you ANY stake in a company.

A CFD is not a share and the holder of an open CFD has NO ASSOCIATION WITH, NO EQUITY IN and NO VOTING RIGHTS in relation to, the company whose CFD he is trading. The CFD transaction is merely a contract between a market maker and a client.

If you have the web-link, I'd be extremely keen to read the actual comments made by the City Takeovers Panel in relation to CFDs.

Regards
Dean

mosaic1996

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Post Number: 25
Registered: 01-2003

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Votes: 0


Friday, June 27, 2003 - 02:58 pm:

The fact that there is no association with the buyer of the CFD and the share is the problem. People/companies can build a stake in the company way past disclosure levels.

D4F would most likely buy the share as a hedge, especially if volume was very large. They would have a special relationship with such a larger buyer. Now on the aspect of control, not sure if this would be legal, but the holder of the CFD could ask D4F to vote their shares in a particular way. Irrespective of voting, CFD's can be used to build a substantial stake in the target company (say 20%+) at a better price than they could if they had to declare a position earlier (say 5%).

Cheers, Mosaic.

deanrosario

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Post Number: 41
Registered: 11-2002

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Friday, June 27, 2003 - 03:16 pm:

Mosaic

You cannot "build a stake in a company" if you do not own equity, or a right to own equity, of some form.

I'm not sure why there seems to be a lot of confusion on this point but CFDs do not give you equity or "a stake" in a company.

I think it would be amateurish and highly unprofitable for D4F to hedge each individual position by purchasing shares on market.

The prudent way would be for it to hedge its OVERALL exposure to the Australian market by purchasing options over one or more of the Australian indices.

Dean

staybaker

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Post Number: 13
Registered: 03-2003

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Friday, June 27, 2003 - 03:45 pm:

There's one other error in the article above - the statement: "The contract runs over a given period, at the end of which the two settle up." CFDs do NOT run over any given period - they last until they are closed.

- Staybaker.

mosaic1996

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Post Number: 28
Registered: 01-2003

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Votes: 0


Friday, June 27, 2003 - 03:58 pm:

Dean,

I suggest that you called D4F and asked them if they buy(long)/sell(short) the underlying. This may not always be the case, but I suspect that it is often the case. It would definitely be the case if someone was building a significant position in the company. They will tell you this if you ask them.

They are not in the business of taking risks, their business model is virtually risk free (bid/ask spread and interest income margin [on shorts and longs]), with the exception of GSL which they may offset with stock or index option.

You're missing the point, you are hung up on them actually owing the equity.

The questionable practice is that they can build a significant CFD position without declaring the fact.

Now if a company (hunter) declares a 5% or 10% stake in a company (target), there is a good chance that the price of the target company will take off. Let's assume that their average price was $2, and last was price $2.20. I could see the price going to $2.50+ just on the speculation. Or they may declare their hand/takeover proposal.

Now if they continue to build a CFD stake to say 25% of the company, it would likely be at a lower price that had their interest been flagged by declaring a 10% interest in the target.

At any stage they can convert their CFD (sell it) into a share (buy it) at the current market price.

The bottom line is that they get the company cheaper. You may argue that they are paying $x for the share, but part of this is offset by profit on the CFD.

If you used D4F to build this position, you would be a very profitable customer for them, and they would bend over backwards to assist you in anyway that they could legally.

Cheers, Mosaic.

deanrosario

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Post Number: 42
Registered: 11-2002

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Friday, June 27, 2003 - 04:12 pm:

Mosaic - I appreciate this discussion but I think we'll have to agree to disagree.

Yes, I am hung up about ownership of equity - it's crucial to this discussion.

I am totally perplexed by your statement that, "At any stage they can convert their CFD (sell it) into a share (buy it) at the current market price".

This is NOT TRUE. A CFD cannot convert into a share. That's the basic point I'm trying to get across.

So what if you build a considerable CFD position - it doesn't give you any rights to the Company's shares!!

Regards
Dean

mosaic1996

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Post Number: 29
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Friday, June 27, 2003 - 04:32 pm:

Say I buy a CFD at $10.00 when the share is at $10.00.

Say I'm lucky and the share price goes to $15.00

Now I can buy the share for $15.00. What price would I get for the CFD? $15?

So the cost of the share would be $15, but I would have made $5 profit on the CFD. So how much did the share really cost me? $10?

CFD's can be converted into shares at any stage. Sell the CFD through D4F, and buy the share through your normal broker at the same price.

As I stated before the questionable practice is that a predator can build a hugh stake in