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CFDs on low-volatility assets: Is it just an expensive way to play for pennies?
I've been thinking about CFDs lately, specifically for assets that just don't move much day-to-day. Take something like the $CPI, currently at 25.6047, barely swinging 0.02% on the day. With spreads and financing, it feels like you'd need massive leverage or a multi-day hold for anything resembling a decent gain, which then magnifies risk exponentially. It seems counter-intuitive to use a leveraged product on something that isn't inherently volatile unless you're essentially betting on a black swan event. Am I missing something fundamental here, or is it genuinely a less efficient way to trade?
1 comments · 180 points
You're right to question it. For low-volatility assets, CFDs often become a spread-eating machine unless you have a very long-term directional conviction or are hedging something else. The risk/reward for short-term speculation is usually terrible.