This topic is to facilitate discussions about various forms of ‘investing’, some that more resemble ‘gambling’.
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It is essentially gambling, using money you do not have. But you’d better have cash on hand, because if your position goes the wrong way, as it does more often than not, expect a margin call to be met within 24 hours.
But at least with gambling at the casino, it doesn’t charge you fees every time you place a bet. The CFD broker does. Win or lose, the CFD provider makes money.
Go and buy Cryptocurrency if you want to gamble at short-term price movements. All you need is someone willing to pay more for your coins than you did. Not hard.
CFDs are a total mugs game. Banned in the US, but allowable in Australia with certain limits and requirements.
I did try share market call and put options years ago in a small way, but CFDs are another level of risk again.
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As is ‘investing in shares’ and especially ‘investing’ using margin loans, although the odds are better than lotto or the casinos 
That being written, everything you posted is right on.
Our world of finance from banks to those spruiking high risk come ons is a comparative wild west with lots of cowboys and a sheriff who takes lots of naps between visits to the pub and is rarely seen to be out and about sheriffing.
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Yes, just like Lotto or picking a 100 to one winner in the Melbourne Cup. For anyone to win big it requires most everyone else to be losers. Although Lotto like games try hard to create an impression of winning by offering lesser prizes in 2nd, 3rd … etc divisions. On average over time nearly everyone is behind rather than ahead.
The minimum cost of entry into the CFD market is a premium compared to lotto. Fortunate given the obsession a significant number of us have with playing the numbers (routinely or on occasion).
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I am interested in the various forms of investing. All such unearned income has risks, knowing those risks is the secret. But as implied here many promoters of the various get rich schemes keep those risks secret.
I’ve invested in ASX shares directly and through Super. Super and Pension funds are the exact same funds as Managed Funds, but with a different administration front end to cope with the different legal requirements. ETFs are often the same funds, but can be traded through ASX rather than via fund manager or say one of the big banks. There are also Warrants, LITs and LICs, etc. They each have the Strengths and Weaknesses with associated risks.
I’m currently interested and learning more about Options trading. Many ill informed will say these too are very high risk, and some strategies are, but many have very clear, very obvious, upfront risks. But don’t confuse these with CFDs, they are nothing like them.
However, in searching for stockbroking firms that provide an Options Trading service and online tools, one stands out for me as being very concerning, ie, CMC Market Stockbroking. I say that because although they advertise themselves as providing a wide range of stockbroking services, almost benignly, Shares, ETFs, LIT, etc, all my contact to them has resulted in them marketing CFDs, and they regularly e-mail me with essentially ads for CFDs, even though I have clearly stated I have no interest in them. I haven’t received any help regarding my questions re Options.
I’m not interested in them because all my online reading says don’t touch CFDs with a barge poll, as your potential exposure to very high loss can be huge, as all margin loan schemes are.
Just for some clarification about Options. Conventional ASX trading and Options have ASX shares in common, but the major difference is based on the investor being able to be the seller or the buyer. To explain, take Insurance as an analogy. I like most people here, buy insurance for damage to my vehicles, home, health, etc, and I pay an upfront fee to the insurer each year. The Insurer Sells me that insurance and gets my annual fee for taking the risk that I might claim. So with insurance there is a buyer, me and a seller, the insurer. With Options the investor can play either role, they sell a contract to buy or sell shares, as a buyer of the contract, you pay an upfront fee(called a premium) that is all the risk you take, whereas if you play the seller role, you get the fee (the premium) but you risk the buyer insisting you either buy their shares or sell them shares at an agreed price, and that is where the high risk lies. The selling role (often referred to as the Writer) is where the high risks occur, as the size is completely unknown. Eg, AGL has risen 12%, and Flight Centre lost 10% in just this last week! That’s 12% or 10% in a week both of which could have made the investor money with Options, compared to the best Super fund, Unisuper, with 10% in a whole year (2022)!
What if the investor assumed the two stocks would trend in the opposite direction to that suggested during the week?
Yes, and if 90% geared, you have more than doubled your capital in the first instance, and in the second lost the lot. And still have the debt.
A game for those who think they know more about these betting schemes than the professionals. And they don’t often lose.
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All investors make risky decisions. Sometimes they get it right others not. The argument is identical for the Share and Options decisions.The point here is that with Options the investor has the opportunity to increase their earnings when stocks fall whereas that can’t be achieved with share investment. But as a Taker, ie, buyer, of an Options contract your risk is the upfront cost of the premium. That cost is very much less than buying the actual shares, and does not have the open ended risks associated with being the Writer, ie, seller of the Options contract. There is no margin loan impact for buyers.
Your one liner doesn’t describe the actual conclusion you have drawn. This is how myths come about.
The 10% loss of Flight Centre loss doesn’t seem to fit the fundamentals, that post pandemic Air transport restrictions, have reversed and are now on the increase. Something similar with AGL as a Gas miner. The argument you seem to putting is that whether you are a Share or Options investor, prices rise and fall, and sometimes don’t move immediately as the investors assumes. However, with Shares you have to risk the full cost of buying the Shares, whereas with Options contracts the upfront cost are a small proportion of the actual share cost, so the capital risked is much smaller.Further as a taker, ie, buyer, the risk is only the up front premium at risk, and there isn’t a margin loan exposure as associated with CFDs, and the writer, ie, seller, of Options.
My point is that gearing into, say shares, amplifies the return or loss on your capital. The lender still has to be paid back, with interest. If the security for the loan is the shares themselves, then if the share value drops you can expect a margin call to pay down enough of the loan to maintain the margin. And you will only have a short time to come up with the cash to do so. Otherwise some or all of your shares will be sold off and your capital will disappear in an instant as the loss is realised.
At least if you had bought shares outright, a loss is only a loss if you have to sell for less than the buy price. But if you are holder for at least a year you can offset the loss against current or future capital gains tax liability.
I have 100% geared on shares and done well risking none of my own capital, but the security for the loan was on unrelated property so no risk of margin calls.
Now taking a call option means risking, at most, the amount of capital you paid for the option. But if you don’t excercise the option, you have done your money.
Taking a put option, on the other hand, means you can win if the other party does not excercise the option. Your gain is the money paid to you for the option. But the loss could be extreme. You may be forced to buy a bunch of worthless shares at the option strike price.
One can profit from falling prices with short selling, although with higher $ amounts in play. Each to their own risk tolerance.
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Your comment about PUT is incorrect.
As the Taker (buyer) of a put contract your only risk is the premium. The risk for Calls and Put are identical. Takers risk the Premium, whereas writers risk being exercised, and it is this exercising risk that requires the margin loan.
Most Options Trading is about buying and selling the contract, as it rises/falls in value. Few are actually exercised by investors wanting to buy/sell the actual underlying share. Hence, the idea that you have “done your money” is inaccurate, as most contracts are sold well before expiring, and or exercising.
Taking a Put option, ie, the taker is the buyer, risks only their premium. If they choose to exercise the contract, they intend to sell shares at the higher contract option price compared to the falling market price. The writer (seller) takes the risk of having buy those shares from the taker at a higher price than the market, hence the potential loss and need for margin loan.
Takers have the right but not the obligation to exercise a contract. Writers on the other hand receive the Premium, for taking the risk that the taker may exercise the contract which they have an obligation to fulfill. It is this obligation that requires the margin loan or the owned shares.
Clearly we are looking at options from opposite sides. From my side it as an investor with some money hoping to get a good return. Looking long. Not trading short.
Options contracts, or CFDs, are for active traders or businesses hedging bets on future prices, not investors. Stay away from them if you are just investing money.
Short selling isn’t available to most ASX retailer investors. Not impossible, but stockbrokers are very cautious about this and the client has to have the capital backing to do so.
Option Trading stockbrokers are equally cautious regarding the short selling Option trading strategies. Novices have to prove themselves over a period of trading. That process is staged. So a novice only has Taker strategies open to them, then covered strategies, ie, where the trader owns the shares that can be used if exercised, together with lower risk multi leg strategies where the risk have precise limits, but writing naked strategies are at the highest level of risk and only available to limited clients.
I haven’t mentioned trading short at all. In fact the opposite. I suspect you are confusing Put options with short trading, and they are not the same. I’m not an expert in CFDs, but have the feeling (no more than that) they may share some common characteristics as Short buying/selling?
Options Trading can be used for Hedging. But that is not the their primary use. It is about investing in fluctuating markets.
My understanding of the terms “Long” and “Short” is about outright ownership (long) vs entering into a loan with the intention of ownership, operating as if you own, hence you could agree to sell something you don’t actually own. A new car purchase, involves a buyer to enter into a contract with a deposit to go Long on owning the car, while the dealer goes short to obtain the car from the manufacturer, ie, selling the car they don’t actually own to the purchaser. The dealer has to have the backing to do that, eg, margin loan arrangement, which they risk if the purchaser, once seeing the car declines the offer.
Not confused at all @longinthetooth
Long and short have nothing to do with borrowing.
Taking a ‘long’ position means not being concerned at all about the hourly/daily/weekly fluctuations in prices of shares or whatever. The focus is on return on investment and appreciation in value. Hopefully both. Dividends and share price going up.
Taking a ‘short’ position means actively taking advantage of price shifts by buying and selling to make some money through a difference between sell price and buy price.
‘Shorting’ is a strategy of dumping shares on the market to drive the price down and then buying back again at the lower price. As some shorters have found out, if the ASX detects this they will be quick to suspend trading, which means the shorters can’t buy back the shares they ‘borrowed’.
And derivatives like options, or CFDs, or CDSs were developed either for risk hedging, or just pure gambling.
What is the source of your definitions of the terms Long and Short?
Am asking because you are so definitive in your style of expression, and yet they seem to be entirely different to those provided by sources such the ASX, Investopedia, the Options Industry Council (USA), etc.
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‘Long position’ is what @longinthetooth mentioned. You are talking about different things, @longinthetooth about technical terminology used in trading and you about investment strategy.
Apologies for the US centric link but ‘I am what I am’.
Long has nothing to do with borrowing if it is purchased in a cash account and not on margin, but short is predicated on the broker/platform being able to borrow (eg on loan) the shares being sold ‘short’, that is usually the case. Both margins and short sales have a ‘cost of borrowing’, broker dependent.
That is simply ‘trading’ and taking profits (or losses). Some call it ‘investing’
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And that is right. I am an investor, not a trader.
Different meanings for different points of view.
I feel confident that most readers of posts in this Community, or articles in Choice, would be interested in how to invest their money with a good return and minimum risk.
And synthetic derivitives that traders play around with is risky. Anyone remember the Global Financial Crisis?
It is not a definition, it is a style of investing.
Or how to increase the value of one’s money going forward.
