CFD Trades

[Tee]

I'm not actively trading now. It became a game of chance, with fees and interest to pay. Trying to guess the intraday movement proved to be beyond my abilities. If anything that I learned its to resist playing with all my capital, better to make a small trade and exit or add to the trade decisively.

[loofa]

I'm not actively trading now. It became a game of chance, with fees and interest to pay. Trying to guess the intraday movement proved to be beyond my abilities. If anything that I learned its to resist playing with all my capital, better to make a small trade and exit or add to the trade decisively.

Day trading is difficult whatever mathod you use.
Don't blame CFDs, blame yourself for not being able to find a strategy.
Personally I have one CFD open now for 17 months. Dividends pay the interest.

[beacon]

I'm not actively trading now. It became a game of chance, with fees and interest to pay. Trying to guess the intraday movement proved to be beyond my abilities. If anything that I learned its to resist playing with all my capital, better to make a small trade and exit or add to the trade decisively.

Too many people play this self-blame game, and it is encouraged at all forums. The non-transparency of the CFD product and platform gets hidden because not many can handle this bull-ride. Be aware that when you play CFDs, you play against humungous odds, regardless of whether you go long or short unless you are incredibly informed or incredibly lucky. I am of the belief that 99% of the punters aren't either. Not for no reason Buffet calls them "products of mass destruction", and not for no reason are CFDs specifically banned in US - the most liquid, open and sophisticated market of the world.

I disagree with people like Ioofa, who encourage blaming oneself rather than investigating the cause of financial loss and recognising the general unsuitability of this product for Jo Public. If NZ and NZX must allow this product to be offered here, let there be proper regulation, effective monitoring and disclosure, as well as an efficient enforcement and punitive punishment regime. At the moment, the CFD providers are Judge, Jury and executioner.

[loofa]

Who am I to disagree with beacon.
However you must be confident enough not to have to use stops because this is where most get caught by the rogue move be it real or imposed.
Do not try to go for quick profit.

[beacon]

Who am I to disagree with beacon.
However you must be confident enough not to have to use stops because this is where most get caught by the rogue move be it real or imposed.
Do not try to go for quick profit.

No offense brother. The post looked directed against you, and i apologise. It is simply against dwelling too much on self-blame, and aimed at stating that the odds with cfds are heavily against the player. Gearing is a double edged sword at the best of times. Kudos to you for having used it well for so long and especially through some very testing times ...

[Tee]

I was into nickel until last week, trying to relate nickel prices to the share price of miners. Holding short positions is no fun when share prices keep rising. Until last week when prices dived. I've recovered all my capital invested (punted?), starting from the end of 2009.
My finding.
I can invest for longer periods, but it is vital to get in and out at the right time. And to go with the flow. The idea is to buy low and sell high!

[sharer]

Tee my old friend, good to see you still fighting fit and up for anything (that might work)!

[QUOTE=Tee;303991... The idea is to buy low and sell high![/QUOTE]
When i was at school I read something just like this advice somewhere in Mark Twain (Samuel Clemens). It seemed so reasonable. We can all get rich. Certainly.
It was a bit puzzling, why was Mark Twain so chronically poor, Scratching a living from lecture tours to even NZ, entertaining with such advice from the stage.
Such a talented dude should be luxuriating at home by the river, fishing, and plotting his next book.
Maybe, having bought low, but finding the price going lower & lower, he should have sold out low & used the dosh to have a go at something better, rather than holding on for ever until the thing eventually went "high"? If ever.
This is always the hardest part of investing for me - i just hate having to admit defeat & sell out at a loss. Grrrrrr!

[sptnz]

I recently had a bad experience with CFDs where I bought a small holding of stocks just as an experiment and then ended up losing 4.5 times what I thought I was risking on a small price shift overnight. So say I spent $1 on the shares, I actually ended up losing $4.50. Funny because I got into CFDs thinking I could buy smaller holdings in shares (thus risking LESS) due to much lower commissions.

On the one hand I can see where Ioofa is coming from - that CFDs are day trading and thus much more difficult.

But then on the other hand from beacon's POV - the average Joe like me doesnt realise how dangerous they are. Kind of annoying that its easier to get into CFDs (just put some credit card money down and you're gone) than everyday sharetrading (forms, ID, pay min $30 commissions which means you need to be trading hefty numbers) - even though they're a lot more complex and risky. Oh and did I mention that CFDs are all over TV (which average Joes happen to watch).

[George]

sptnz, cfd's can be used for position trading also. Re yr losses, if u buy 100 BHP at say 44.00 that means $100 per 100 point move. So if you held it while it dropped to 37.00 that's $700 gone plus $20 odd for brokerage and overnight interest.
Multiply that with a number of shares and it's easy to see how people get into trouble. Either use stops or even GSLO (which they charge through the nose for), control your size better, have equal number of shorts on or maybe short the index etc. etc.
Another idea, until you are really adept at this game, practice trading 1 contract the SPX500 or 5 contracts on the Nikkei where 100 or 1000 point moves are not account threatening and only increase size as your account grows. You don't say how much money you have to play with (or how many shares you bought etc), there may be a point where CFD's are not the best idea but I don't see any problem with smaller amounts.

[peat]

exactly George it seems possible to me to evaluate risk with CFD's, that is to predict the exposure and maximum potential loss
One has to be aware of the possibility with individual stocks that there can be extreme overnight or weekend gaps due to the market being closed and then re-opening at a completely new price - BP has done this a lot lately . Choose low volatility stocks (low beta) to reduce this or you can hedge as George says, or you can reduce position size.
This is one advantage with forex or indexes. You still need to sleep but can have stops in place that are unlikely to get leaped over.

[sptnz]

Hi, thanks for your thoughtful replies - esp George.

This whole point thing makes sense to me now - wish I'd known earlier :(.

For the moment I think I'll withdraw my remaining equity from the CFD broker and look at something a bit more stable. Paying a minimum $29 commission to buy some shares isn't great, but at least i know that the most I can lose is the money I invested.:t_up:

On that note can anyone recommend any type of trading that has lower cost-per-transaction (e.g. Forex)?

[Abracadabra]

I am thinking of signing up to a course specialising in CFD's. It would appear though that some people haven't had a lot of success with them. I don't know an awful lot about them yet, but they do seem to talk a lot about stop losses and making sure you always have a GSLO in place. This is appealing to me, knowing the maximum I might lose. Peat, do I understand you correctly when you say if the market gaps on opening your GSLO doesn't hold and you could lose more? If this is the case, it hardly seems worth paying the extra to have this in place, and they don't seem quite as appealing after all.

[beacon]

This is appealing to me, knowing the maximum I might lose.

Great. So you know you'll lose it. Have you considered giving it to charity, instead of to your CFD dealer ...


... if the market gaps on opening your GSLO doesn't hold and you could lose more?

GSLO is honoured without slippage generally, hance its higher cost. Know that insiders chase Stop losses, and GSLO is a Stop Loss ...

[peat]

beacon has explained that the Guaranteed Stop Loss takes away the risk of the overnight gap that I was talking about. Personally , for me at least , if I cant handle an overnight movement within the realms of 'predictable normality' (if I may use such a phrase) which includes the sort of volatility that we're experiencing at the moment, namely higher than usual, then the position is too large and should be reduced. I wouldnt ever pay the extra for a GSLO. to me needing one of those says you're overleveraged.

[CJ]

Know that insiders chase Stop losses, That is when I stopped using CFD's (very early on). I got kicked out of a good position on NZD:USD on a very conservative stop loss. The actual currency didn't move anywhere near that much and I lost a lot of money (compared to my investment - luckily I was still practicing with small amounts).

It may not have been insiders but it was definitely someone stop chasing know that the volumes on the CFD is a lot small than the real market. To move the real market that much would have cost trillions.

[George]

Abra, why would they help you with advice about stops etc. think about it. Some top traders use mental stops or control their risk with size and scale in etc. This takes discipline admittedly but if you haven't got that you've got no chance anyway. Peat's right, traders who get into trouble have too large a position.
Work out how much you would have lost with various sizes in the May 8 meltdown say 1000 pts on the Dow. 1 contract is down $US1,000 although it bounced back before gradually heading even lower to the present. If you can't afford $1,000 loss move to SPX500 or Nikkei eg. 10 contracts on a 1000 point drop in the Nikkei would be a paper loss of about $150, much easier to handle if your account is small. You need to almost not care about what is happening to your position.

[Abracadabra]

Thanks for your replies. I am so glad I haven't signed up yet it seems I have more to think about and more research than I thought.
I know it sounds very niave but I didn't really take the obvious maniplutation of prices into account. I guess I thought it would only be large orders with stop losses that would come to anyones attention, I didn't really think it through, because I suppose if you had the same order you would be taken out as well.
I've only really been looking at CFD's when they came to my attention when I was looking for an Australian broker for options. I have been trading options in the US for a while now (mixed results) and wanted to have a go at some Australian ones but am finding it difficult to find an broker thats brokerage is not too expensive. CFD rates seemed to compare favourably, I will rethink it though.
Thanks again for your help.