View Full Version : IG Markets learning curve

29-05-2012, 03:12 PM
Hi guys,
So in one of my classes, we were given a practise account on this website http://www.igmarkets.com.au/
We were given 5-11 days to make(or lose) as much money as possible with 20k.
I never really realised just how volatile the market really is and how quickly 20k can turn into 5k or 35k.
Obviously i need to learn a lot more about the system and getting used to CFD's but im 23 and have $1000-$2000 and my question is: is $1000 enough to buy stock that gives me a high profit/loss quickly? I was thinking of researching 2-3 companies and using technical analysis to choose the right moments to buy/short. Will this $1000 allow me enough margin to get large returns or was that 20k an unspoken minimum for that? Obviously i will do a lot of research before entering into any trades but im OK losing that money and am happy with the highest of risks as long as its calculated.
Any advice would be greatly appreciated :)

29-05-2012, 06:17 PM

I'm suprised that a classroom environment would use a CFD similation as an entre to the world of finance but am guessing I don't know the context in which it is being used. Perhaps they are demonstrating the impact of leverage or the risks/rewards of leverging with volatile markets?

Your major issues with a small cash kitty (and trading generally) are:
Cash Management (and leverage)
Transaction Fees
Correlation / Hedging

Cash Management:
Expose only small portions of your equity to single trades. If you cap equity to say 1% per trade, you could have 10 trades open, achieve a reasonable statistical proxy to wide diversity and still have 90% of your money in the bank to cover losses / margin calls. Keep the leverage factor in mind though - trades could conceivably be at a 1% equity ratio so you are still exposing yourself to hefty proportional losses and with intererst even total losses.

Transaction Fees:
1% of $1,000 at 99% leverage might give you a $1,000 trade for $10 down. However the minimum transaction fee may be $10 as well. You've lost 100% of your money before you begin. It may be a case of either needing a bit more equity or being right a lot.

Correlation / Hedging:
If you have multiple trades open, you can manage (or 'Hedge') risk by grouping them into either uncorrelated or inversely correlated categories. Say you have 10 open trades but they are all shares in banks, insurance companies and fund managers. If financial markets in general tank, your portfolio performance will probably be strongly correlated to this outcome and you will take losses on pretty much everything at once, perhaps even threatening your solvency. Consider how your mix of investments will perform under various criteria and have some idea of how different classes of assets tend to perform in relation to each other.

Final word...
CFDs are typically synthetic. Synthetic Derivatives are instruments where no actual physical trade is made. Instead it works more like a promise - you or your counter party promises to deliver x at a price of y under certain conditions. Insurance companies do this with you - you pay money, they give you a piece of paper that is nothing more than a promise to pay. Customers of Western Pacific and Ansvar are discovering what a promise is sometimes worth. Because no physical assets are involved and your counter party can also be leveraged a 1 to 100, you have no idea if they could deliver. Consider this carefully - if you are making big profits, maybe they are making big losses? CFDs are illegal in the USA, who view them as Bucket Shops. Google this term on the dangers of doing synthetic trades with the provider of the trading service - wiki has a good enough explanation.

26-06-2012, 07:37 AM
let me explain the ig markets learning curve.

1. People with no knowledge of investments or finance have a small amount (usually) to invest

2. Aforementioned persons see advertising and think - yes I could make money here easily i could be a 'trader' - that sounds cool

3. Persons then gamble their money in the market - using TA that they just read about online

4. Persons lose all their money - lesson learnt. thats the CFD learning curve.

Seriously - focus on your studies and do well at what you need to do in life. If you want to make a career in finance - learn, work, then invest. Not the other way.