Trading CFDs

[SilvergunSuperman]

Anyone here trade CFDs (contract for difference)? I stumbled across it around the time I started getting into PMs as I was reading up on buying shares etc. I used a demo version of the trading platform for a couple of months to learn how it all works and have recently started using real money, just small amounts at the moment. 

 

The company I went with gave me £20 free for signing up and so far I've turned this into £170 without putting any of my own funds in. I've made most of this from trading on gold and silver prices, and a little on currencies. Being familiar with PM price action is definitely a big help.

 

The risks can be high as it's highly leveraged, but if you're careful losses can be controlled and so far it seems reasonably straightforward to make small profits. I'm thinking unless it's just beginner's luck it could supplement my PM fund nicely.

[rob121]

there's a reason they give you free money to start. i've worked in a similar business and trust me they will get you in the end with leveraged products. my suggestion is quit now while you're ahead and enjoy what you have won.

[SilvergunSuperman]

there's a reason they give you free money to start. i've worked in a similar business and trust me they will get you in the end with leveraged products. my suggestion is quit now while you're ahead and enjoy what you have won.

 

I know what you mean, it would b easy to lose big if you take the risks and they probably rely on people doing this. I think if you're cautious though, using automatic stops and avoiding the most leveraged products (some are x300) then it doesn't have to be risky. Maybe it just seems like fun at the moment as I've not spent any of my own money.

[oliversw5]

I agree with Rob on this one, I know too many people who have lost the lot using cfd's (including the house and wife). If you know what you are doing you are only half way there, what most people lack is the discipline to use cfd's appropriately. 

 

...If you do however wish to pursue this option (each to their own and good luck to you if you do) then I would suggest reading as much literature (preferably academic) on behavioural finance. 

 

They are not all bad however, for example if you need insurance for your PM stack and you think that the price is going to plummet then back the metal to go down via contract, if it doesn't you lose your 'deposit' if it does buy more gold to keep your physical position in a good state. 

 

ATB whatever you decide to do 

 

Shaun

[rob121]

The thing about discipline is we don't have it all the time, we are risk takers by nature (especially men) and all the profits you have slowly built up with discipline will probably get wiped out in a moment of madness. i'm not saying everyone will do this but the vast majority will. You know yourself better than anyone so if you KNOW you won't lose your discipline more power to you.

[FTYBR]

CFD's are in immensely useful tool if you're a fund manager or gambler. Something like 95% of Average Joe traders lose money in their first year. Trading most indexes with tight stop losses is pointless - the day to day volatility will wipe out stops long and short before eventually resuming their trend. Everyone's always after that one big position that bags £000's - just doesn't happen. I've said it before, it's like picking up pennies in front of a steamroller (a fast steamroller!)

And stop losses mean sh!t when something like the below happens (even Mini CFD's on the EUR/CHF ran up tens of thousands in losses that day and positions were frozen. Flash crashes on the main market indexes just as likely - happened before and will happen again.

I'd learn how to trade options instead, much less risk but still opportunity for good returns.

[sovereignsteve]

I've done and still do a far bit of spread-betting, pretty much the same as CFD but different tax rules. It is possible to win long term, but you need several strategies and learn which one to use when, as they perform differently in different market situations.

As said before, discipline and money management are key. If you don't have both, stay out.

[sovereignsteve]

The Swiss/Euro fix was always a catastrophe waiting to happen. They didn't have to announce it when they did though, almost guaranteed to cause the most pain, must have been deliberate. When everyone is doing the same thing, it's almost always the best course of action to go the other way.

[ChrisSilver]

CFD's are quite useful. I preferred spread betting, winnings are tax free. But losses are not tax deductible like CFD's are.

 

You should ideally not be risking anymore than 1-2% of your account balance per trade. Anything more and you are leveraged too much in my opinion.

From my personal experience trading is insanely difficult. Nice steady safe and slow profits can be wiped out overnight when a particular stock or index gaps up or down for whatever reason. Or huge spikes up and down can occur like in the screenshot FTYBR posted.

I have a friend who was successfully trading and had a large amount of investors capital, but he eventually stopped trading when his strategy stopped working. Even if you get a good strategy going, it won't last forever. I think he trades occasionally, but his main income is from elsewhere now.

There are people who are extremely successful at trading, but they devote their whole lives to it. And even then a lot of people end up eventually loosing everything.

I respect those that can make money trading, but I don't trade myself as (from experience) trading is not for me and is too risky for me personally.

This is a good radio show, hosted buy a guy in the US http://www.daytradingradio.com

Books I would recommend:

Encyclopaedia of chart patterns
Technically Analysis Explained by Pring

[motorbikez]

I'd learn how to trade options instead, much less risk but still opportunity for good returns.

 

Good advice if you want a bit of fun without losing everything, with traded options you cannot lose more than your stake.

 

If you have any sensible money invested in individual FTSE 100 shares you can write options against your own shares. DYOR as I am now for the last 3 years or so not an active investor I only hold 2 shares FRES & RRS

[Guest]

Lost £250 spread betting.

I didn't enjoy the experience and just spent way too long staring at charts.

I don't think I am a natural gambler having seen my dad lose our house and all his money in the world to London Casinos.

[ChrisSilver]

Lost £250 spread betting.

I didn't enjoy the experience and just spent way too long staring at charts.

I don't think I am a natural gambler having seen my dad lose our house and all his money in the world to London Casinos.

It's good to loose a small amount and then decide it's not for you. Rather than have a few winnings, top up your account with a huge proportion of your capital and then loose it all.

[SilvergunSuperman]

Interesting to hear you guys' opinions on this.

 

I'd like to think I am a very cautious person by nature and I would never put myself in the position of potentially losing big. My CFD trading so far has been in very small amounts, typically opening and closing positions while I'm physically at the laptop and taking profits of £5-20 at a time while I watch. It's not really suited to long-term positions as there is a small premium added at the end of each trading day , but for me it seems to work when I'm at home and can watch the markets in real time.

 

I plan to withdraw most of my balance as I go, as you can't lose what isn't there. If the remainder is frittered away then I may feel differently about putting in my own money. My PMs are so ingrained into my thinking now, as I've made small profits along they way I've thought 'I could take that and buy a half sov', then 'I could buy a 20 franc' etc. Full sov coming up.

[ChrisSilver]

@

There is also slippage to take into account. A position may spike down sharply closing your position but it could close 30% lower than your stop loss. I think it is possible to loose more money than is in your account. But you will need to check.

In general though the risk of sudden price movement is far smaller than holding overnight positions. As the spikes up/down are generally far smaller than huge gap ups / downs that occur.

[HelpingHands]

All the trading platform TV adverts say 'you could lose more than your initial deposit'.

[SilvergunSuperman]

@

There is also slippage to take into account. A position may spike down sharply closing your position but it could close 30% lower than your stop loss. I think it is possible to loose more money than is in your account. But you will need to check.

In general though the risk of sudden price movement is far smaller than holding overnight positions. As the spikes up/down are generally far smaller than huge gap ups / downs that occur.

 

I'm  not sure if all platforms are the same but the one I use has a 'guaranteed stop' feature to counter the risk of slippage. 

 

Your account needs to contain a minimum maintenance margin to keep positions open. Once it drops below this amount all positions are closed automatically. It is possible to lose more than the initial deposit amount but not more than the account balance, eg, if you have £1000 in the account and open a position with an initial margin of £50, you could lose more than £50 but not more than £1000.

[sovereignsteve]

Interesting to hear you guys' opinions on this.

 

I'd like to think I am a very cautious person by nature and I would never put myself in the position of potentially losing big. My CFD trading so far has been in very small amounts, typically opening and closing positions while I'm physically at the laptop and taking profits of £5-20 at a time while I watch. It's not really suited to long-term positions as there is a small premium added at the end of each trading day , but for me it seems to work when I'm at home and can watch the markets in real time.

 

I plan to withdraw most of my balance as I go, as you can't lose what isn't there. If the remainder is frittered away then I may feel differently about putting in my own money. My PMs are so ingrained into my thinking now, as I've made small profits along they way I've thought 'I could take that and buy a half sov', then 'I could buy a 20 franc' etc. Full sov coming up.

Cautious is good in this game. It's a marathon not a sprint. Aim for lots of small wins and risk a very small % of your bank per trade. Find a system that wins better than half of the time and the target:loss ratio is > 1 and you should win over the long term, so long as you stick to your system and don't get carried away. Be cautious, capital preservation is the be all and end all, don't go chasing trades.

You seem to be day trading so are less likely to get hit with slippage and gapping, just avoid being exposed during big news events like the US NFP announcement (although you can successfully trade these). I'm not sure about the day trading costs of CFDs as opposed to spread-betting, you may be better with the latter.

There are lots of good systems to buy out there, have a look at a few. Try the More Money Review website.