# CFDs - Confused!



## anthon (17 March 2008)

I have been reading everything I can about CFD's but still have a fair few questions.

Currently we're trading mainly indices through IG Markets although we are starting to notice a few of the tricks spoken about on here. Things like opening/closing a position nowhere near where it was when we executed, spikes in the market that didnt happen anywhere else etc.

Now we're starting to wonder if there is a better provider for indices, or different things we can try to maximise our gains on the IG platform.

Are there any rules people follow or things they look for? Whats an average margin that you risk? Do you trade the full contracts or minis?

If anyone has any advice or answers they would be greatly appreciated.

Cheers,

Anthon


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## The Ferret (17 March 2008)

CFD.... Capital Fast Disappearing.

I've decided to stay well away from CFD's for the time being. Especially if they are via a service provider who does not use direct market access.

Good luck!


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## robots (17 March 2008)

hello,

you can go to the futures market, I went with tricom

i used to spread bet with IG, had to have huge stop losses, mostly traded the asx200 (whatever) and dow, got sick of watching the dow

they are all as questionable as each other (futures and other derivatives),

i would guarantee not one cfd provider would "hedge", if they did they would only make money via overnight cash rate + margin, miniscule

they are betting houses, 

CMC has a PDS of 166 pages!

thankyou

robots


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## robots (17 March 2008)

hello,

good one ferret

thankyou

robots


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## Trembling Hand (17 March 2008)

anthon said:


> Currently we're trading mainly indices through IG Markets although we are starting to notice a few of the tricks spoken about on here. Things like opening/closing a position nowhere near where it was when we executed, spikes in the market that didnt happen anywhere else etc.




Show us an example. I have yet to see this to be true in about 5 years of following CFDs and Futures. I wish it was true because it would create the Biggest arbitrage opportunity out there. Mostly these comments come from people who don't know what they are trading.



anthon said:


> Are there any rules people follow or things they look for? Whats an average margin that you risk? Do you trade the full contracts or minis?




Its generally accepted that risking anymore than 2% of equity on a trade is going to lead to a blow up. That is when you are about to enter a trade you should calculate where your stop so, then how much you can trade to only risk Max 2% of your account if your stop is hit.


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## vishalt (17 March 2008)

Please don't play in CFDs, please don't. 

They are bad, they are evil, and you may think that when you beat the market that you're invincible, you cannot imagine the damage even 5% gearing has caused people I know.


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## tasmanian (17 March 2008)

I personally think cfd,s are great.Too many people that dont understand how they work will blow there accounts in a month or 2.

People that dont know what they are doing seem to be the worst ones hit.

If you have $10,000 in your cfd account trades as though you have $10,000 in your account.Too many people think oh with leverage now I have a $100,000 and they blow there account in a few trades.

If you cant understand how they work dont touch them until you do.

The main adantage with cfd,s is instead of having  all your money tied up in the market you can put it in the bank or invest it somewhere else and add to your cfd account if need be.

If you have a $100,000 to trade with you only need to put $10,000 into your cfd account and still have the same exposure.Your other $90,000 can be invested  somewhere else and added to your account as I said if you have a few loses.My max loss on a cfd trade is $500 or thereabouts.Just let my winners run hopefully they turn into a few thousand or more and the good ones pyramid into them as Im more and more in profit.This way you can have alot more loses but the good trades you hold for a few months will  cover the loosers.Its not get rich quick but slowly your account wil grow and you can have more trades running and start to buy biggger parcels.

Too many people get greedy and want the big $$$ fast.Trust me Ive learnt from experience there.

Its all about risk/reward.If your right 50% of the time and wrong 50% and you look after your loses and keep them small eventually you will win.

Learn as much as you can before using cfd,s they can obvisouly be deadly to the inexperienced but they are great imo when used properly

cheers


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## Trembling Hand (17 March 2008)

tasmanian said:


> The main adantage with cfd,s is instead of having  all your money tied up in the market you can put it in the bank or invest it somewhere else and add to your cfd account if need be.
> 
> If you have a $100,000 to trade with you only need to put $10,000 into your cfd account and still have the same exposure.Your other $90,000 can be invested  somewhere else and added to your account as I said if you have a few loses.




But the problem with this is that if you have $100,000 exposure with CFDs you are paying interest on a $100,000 loan!!

Your above example is only going to work if you can use the other $90,000 to make more than the interest you are now being penalized. Not an easy task in this market by a long shot.


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## tasmanian (17 March 2008)

Sorry should have clarified that abit more I mainly use cfd,s to go short.So get paid interest not much but enough.

cheers


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## Nick Radge (18 March 2008)

> Please don't play in CFDs, please don't.
> 
> They are bad, they are evil, and you may think that when you beat the market that you're invincible, you cannot imagine the damage even 5% gearing has caused people I know.




There is nothing evil with CFD's. This is a great example of ignorance and inability to take responsibility for one's actions. 

Both a Porsche and Toyota Starlet offer the driver the ability to kill them self. The choice is how the car is driven. 

The same is true for CFD's and any other instrument for that matter.

Trade them incorrectly, trade them without correct education and one will come unstuck. However, this is not a function of the instrument, but of the user.

Part of one's education is what and how a MM provider can skew the prices according to their own book. In other words one should steer well clear of any MM provider. If you want to trade indices then use the futures markets.


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## anthon (18 March 2008)

Whilst I am keen to eventually move to futures I dont have the funds available for the time being.

Can someone recommend a platform then that would be better to trade the ASX200 and FTSE on?


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## Trembling Hand (18 March 2008)

anthon said:


> Whilst I am keen to eventually move to futures I dont have the funds available for the time being.




Could you answer me this.
If you haven't the funds to trade Futures why would it be any different trading the same thing with CFDs?


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## anthon (18 March 2008)

Well correct me if I am wrong but im only playing with $1500 - I didnt think that would be enough to cut it on futures.

Obviously I am wrong.


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## Trembling Hand (18 March 2008)

anthon said:


> Well correct me if I am wrong but im only playing with $1500 - I didnt think that would be enough to cut it on futures.
> 
> Obviously I am wrong.




Thats my point mate. If you only have $1500 that is not going to last long. Putting up a tiny margin with CFDs is not what you have to be thinking about. Its the risk per trade and the Max number of bad trades that will end in ruin. And with $1500 you fate is sealed.

Especially if you are new to the game. Thats leaves no room for mistakes.


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## MichaelD (18 March 2008)

Trembling Hand said:


> If you haven't the funds to trade Futures why would it be any different trading the same thing with CFDs?




I can think of one example; the Aussie 200 mini CFD contract ($5 per point versus $25 per point for the straight futures) - makes risk management viable in situations where it may not be otherwise.

To the original poster; a novice trader with $1500 should NOT be trading CFDs. In fact, you shouldn't be trading anything yet - this level of capital is at least one order of magnitude too small to survive the learning curve (unless you gamble and get really, really lucky).


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## anthon (18 March 2008)

Well pointers on where to start?

Happy to lose it if I learn something.

And to think I was doing well!


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## Trembling Hand (18 March 2008)

If you really had to trade you could try CMC they have a Aussie200 which has a minimum $1 move per tick (1/25th of the spi)

But really, almost certainly to be a $1500 education.


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## CFD (18 March 2008)

anthon, if you can afford the $1500- loss in the name of education and experience, why not give it a go. You will learn more when your own money is on the line than by doing theory.

IG Markets, whilst not that highly thought of by successful trades, has an excellent platform that is easier to learn and better suited to CFD trades than the professionals WebIRESS platform. Also there are no monthly platform and ASX fees to eat away at your funds. 

Stay with IG and look at shares rather than holding index's overnight.
As an example set a stop loss initially at 5% with the difference in value between the SL and entry price being 2% of your bank. ie 
Share EP (long) $5-. 
SL $5 x 5% = (0.25) set at $4.75. 
Units, $1500 bank x 2% / .25 = 120.  
The min. comm. is $8- per trade, so $16- is likely going to eat up any profits without a bigger bank. But you're not looking to be viable, your looking for experience.

So without expecting to make money, have some fun seeing how long you can make it last. 
Learn how to manage the SL, so your maximum risk of $30- per trade is progressively reduced as the trade progresses. 
See how slippage works, both for and against you. 
See how the outcome of the last few trades has no bearing on the next.
See how important it is for the outcome of any one trade not to be important.


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## >Apocalypto< (18 March 2008)

vishalt said:


> Please don't play in CFDs, please don't.
> 
> They are bad, they are evil, and you may think that when you beat the market that you're invincible, you cannot imagine the damage even 5% gearing has caused people I know.




LOL,

Funny post!

I take it all your mates were using strict money management Vishalt. There is so much wrong with that post, i just won't start up. I trade FX and FX only I risk 1-3 % of my account depending on Risk reward and if it's a trend continuation or a counter trend. I now trade with a Forex dealing desk and I used to trade with IG fx cfd's. did blow myself up using cfd's? yes twice. Have i blown my self up again since I used my MM plan? No I have put on 400% since November 07. Are CFD's Evil? no your own mind is evil and greedy that's why u blow up. you could trade on any product and blow yourself up. come on Vishalt keep this kind of crap off the public forums. 

Cheers


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## IFocus (18 March 2008)

>Apocalypto< said:


> LOL,
> 
> Funny post!
> 
> ...




Great to hear you are going well Trade it keep that expectancy cure upwards and onwards.....


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## >Apocalypto< (18 March 2008)

anthon said:


> Well pointers on where to start?
> 
> Happy to lose it if I learn something.
> 
> And to think I was doing well!




Hi Anthon,

If you want to learn to trade live and only risk a tiny amount then u can trade mini FX 1$ a pip. Or CMC plus others offer 1$ a point on indexes. you can still trade your 1500 and follow a tight money management plan. 

It all depends on what u want, u want to be rich off that 15 hundred, u will most likely go broke. You want to learn to trade, that can do. Just follow MM and only risk 1$. 1% of 1500 is 15$ so u can do it. I rounded your acc total up so please don't kill me on that!

Good trading


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## anthon (18 March 2008)

>Apocalypto< said:


> Hi Anthon,
> 
> If you want to learn to trade live and only risk a tiny amount then u can trade mini FX 1$ a pip. Or CMC plus others offer 1$ a point on indexes. you can still trade your 1500 and follow a tight money management plan.
> 
> ...




Thanks for that Apocalypto. We will see how we go!


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## CFD (19 March 2008)

Trade It, that's where you got to. Please to hear you trades are going well.


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## Trembling Hand (19 March 2008)

anthon could I ask what type of trading do you do? Intraday, scalp, position etc. That may determine if you are able to trade $1500.


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## auric (19 March 2008)

any views for and against 
Amro quoted minis on the asx shares and xjo compared to cfd's
cheers 
ken


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## xjo (25 March 2008)

My advice is do as much research as you can, get a trading plan together and start trading.
ALWAYS use stops to protect your account (and yourself) from a wipe out and keep your position size as small as possible to start with. If trading the A200, just trade one contract until you have the confidence and account size to increase your bet size. Trading small contract numbers also allow you to use wider stops which are then less likely to be hit by market noise (or CFD provider noise)

Cheers, 
xjo


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## MoneyNeverSleeps (8 April 2008)

This site is great, I'm new to trading (previously a buy and hold investor which is pseudo trading!) and just from this thread alone (I am reading many others also) I now have a basic plan or at least a framework for a plan:

1. Open an account with CMC Markets (around $10000)
2. Learn with the Aussie 200 @ $1 per tick
3. Use CMC's Market Maker for now (perhaps also AmiBroker)
4. Create a trading plan:
i. Trade one contract at a time for now.
ii. Widen stops as I play to allow for "noise" etc (until I have the confidence for multiple contracts)
iii. Strategy will be scalping (100% intraday trades of seconds or minutes)
iv. Risk =< 2% of my equity on each trade (use this to calculate stops)
v. Keep reading threads on this site!!!

Hmmm..... I'm sure I've missed a million things?


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## Trembling Hand (8 April 2008)

Welcome MoneyNeverSleeps.

Just to point out a couple of things.

A trading plan is nothing if it doesn't exploit an edge. Meaning if you haven't got a known statistical advantage the basics money management guides are only going to stop you blowing up fast. 

With the 2% rule and $1 contract that will give you a stop of 200 points which is obviously not right. I would look at a 10 to 20 point stop and stick to 1 contract until you have 100 -150 trades under your belt to then judge if you can put together some plan with a trading edge. and then start looking at the 2% rule.

And keep very good records.

Good luck.


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## MoneyNeverSleeps (8 April 2008)

Thanks TH!

I'm onto it now! Should have my account etc up and running fairly soon.

This is a career change for me, I've had several small businesses and been an   investor in real estate and shares however I need a change in direction and trading made the top of a short list of options due to the flexibility and the fact that it draws on some of my experience and education etc.

Now, to work.............


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