# CFDs - Newbie Trap? Advice & Flaming most welcome!



## Denkiblue (20 May 2013)

Ok, typical Newb here - plenty of research on this site which has led me to realize I have no idea what I am doing!

I would really like some of you more experienced campaigners to tell me exactly what I am 'leveraging' here as I seem to be using my own money??? - and all the other misunderstandings I may have!

Many thanks in advance - please be nice with your flaming though!!

I first learned about CFDs through a friend late in 2012. It seemed too good to be true as these things always do, but my friend made it quite clear that a 'big loss' was not out of the question, ie. it is GAMBLING.

With this in mind I thought the best route to take would be an IG demo account and to see how it went. I ended up doing probably 4+ demos with IG Aus and even Sing for a comparison (seems the leverage is super different, wasn't able to buy anywhere near the same number of contracts on Sing even with about 5x the real 'virtual Demo-money'. Anyway, I think I may have lost on the first demo, but I 'won' on all the following ones and so thought that I'd give it a try.

* Disclaimer - I enjoy mathematics, and am quite comfortable sitting up late at night staring at a graph(s) - however I am a terrible gambler (so I don't) and I barely know the difference between a derivative and a stock.

Anyway, I began a humble IG account with AUD5k and took the plunge. My weapon of choice seems to be Wall St ($500 contracts), after a brief affair with BHP and Rio on the FTSE where I learnt that for me, spread trumps commission. I based my trading on the current trend (bull/bear if I can!) and Bloomberg amongst other things like expected news for the day, and some of my own attempted interpretations of the current movements of the graph.

I think I increased my account up to around 8k before I took out 2k and then managed to make a 'newb' click-error and accidentally closed an open position which was a fair way down losing $900. After this my confidence was a bit struck and I aborted a couple of the few 'strategies' I had, and made a few other small losses (not totaling much more than $100), and at this point I was quite confused. I genuinely didn't know whether to get out and just quit while I was ahead (the account would have been around $4,700 at this stage), but I decided to keep going.

I managed to regain composure so to speak, and get back to my rules and have managed to raise the account up to just under 10k after having withdrawn a total of almost 4k - and all of this in about 5 weeks. 

I believe there is no 'magic' here and my rules are pretty simple.

*1.* 1 500-dollar Wall St. position (DJIA) for every $5000 in account size.
*2.* Target revenue range on one position: $100 - $1000 (based on current situational-risk)
*3.* Do NOT sell.
*4.* Do NOT close in the RED
*5.* Don't plan to stay in over night, but...
*6.* Chase a falling graph in a positive environment with further purchasing (build this into initial contract size)
*7.* Be prepared to hold - up to a week.

That's about it really. I have only just started using limits and they have worked _for_ me as much as against me - but I think I am getting better there. I am not a big fan of the 'stop loss' or whatever it is called as my 'strategies', if you can call them that..lol, require holding positions which have fallen a long way until they come back. I also often have Germany30 open as it seems to correlate well, and I want to have a go at that in the future as the movements often seem to suit me.

Now I can easily see that I am gambling, and there is a chance I could lose everything in the event of some freak crash (see the AFP-twitter-account-White-House hacking rubbish???) for an example of how easily things can go pear. So I believe I am limiting my risk at 10%, and as much as it would still hurt - I am only playing with what I can afford to lose.

After a bit of contemplation over this whole 'crash' thing I got to thinking: if I want to be in this for the long-term (which I do), and I live in a developing country where I don't need a large volume of big payments from the account - I need to reeeeealy minimize my risk. It seemed the prospect of the AFP-drop was not to be ignored and had to be factored in. 

So I figured I will create a second account at IG and load it with 3k (30%) with the aim of building it to a minimum of 5k ASAP. I would never allow both accounts to be trading at the same time (at least in the same direction). My thoughts for this second account are:

*1.* It makes a good trading-backup. (I know banks provide interest but it means there is no trading downtime)
*2.* I would go back to my initial deposit is things hit the fan (Not really the end of the world)
*3.* I am not chasing millions, just a modest consistent revenue stream which is built to handle the odd unexpected-interruption.
*4.* I will obviously have to initially work to gain back the equity given to the second account.

There it is, this is where I am at and I appreciate the time you guys take to read this!

Advice is most welcome and flame away - but the more constructive the better 
I obviously have plenty of reading to do - but I learn better on the job and also have a tendency to learn from my mistakes!

Cheers,

Newb to CFDs...


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## lusk (20 May 2013)

Denkiblue said:


> I believe there is no 'magic' here and my rules are pretty simple.
> 
> *1.* 1 500-dollar Wall St. position (DJIA) for every $5000 in account size.
> *2.* Target revenue range on one position: $100 - $1000 (based on current situational-risk)
> ...




All l will say is be aware of your system as blind freddy himself could make money in this market the way its trending up.


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## Trembling Hand (20 May 2013)

Denkiblue said:


> Do NOT close in the RED





Denkiblue said:


> then managed to make a 'newb' click-error and accidentally closed an open position which was a fair way down losing $900.





Denkiblue said:


> if I want to be in this for the long-term (which I do),




You are dreaming. It will only take 1 bad night and you will be done. You were 11% off side on capital on one trade and closed it out.... then call it a mistake. The mistake is that you had a position size absolutely way too large. But that wasn't  your first mistake. Your first mistake is believing you can beat the certainty of risk of ruin without a tested positive expectancy system...... and with cowboy leverage.... :cowboy:


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## ROE (20 May 2013)

You want to play the market for long term but you leverage 8-10 to 1?

This is not long term investing, this is a bet on the market direction...

This is long term, market down 40%, and it pro long for several years before it go into volatile stage
5-10% movement every so often...and it could go no where for another several years...can you hold while keep
Putting up margins? can you survive in this scenario?

With this leverage it doesnt take much before your capital is wiped out and they ring you up to put up extra margin...

CFDs look easy when the market moving in one direction so be careful .... CFDs usually make market maker rich not you....

The products banned in the US as they considered it as a gambling product, take extra caution and work hard to understand the risk....


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## Denkiblue (20 May 2013)

Advice heeded guys - I know I know nothing, I know I am learning here and that could get expensive!

Ok, if the amount I am leveraging appears to be crazy, what range is more acceptable then?

If one bad night could/will wipe me out - then why not just use two 2 accounts which are never traded at the same time - would that not offer some risk protection? I know it's oversimplifying it - but surely this would do something?

I know that all you guys have been doing this for years - and I don't profess to be any whiz at this and I know ZERO, I just seem to enjoy it, so I would like to do more. I know I am not playing with millions, I am just looking to investigate an opportunity really, and I appreciate all the reality checking!

On indices like DJIA - what size of one-time-fall etc., would reasonably be expected?
(I know this is like asking how long a piece of string is) but, 500points, 1000points, 5000 points???
I mean ANYTHING can happen of course - but what would occur in the 'reasonably probable' range?

Keep flaming - I appreciate hearing it all, even if it's about the many things I am doing wrong - that is why I am here! Teach me how to be less of a cowboy and I will do my best!

Cheers,


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## boofis (20 May 2013)

Denkiblue said:


> Advice heeded guys - I know I know nothing, I know I am learning here and that could get expensive!
> 
> Ok, if the amount I am leveraging appears to be crazy, what range is more acceptable then?
> 
> ...




Hmmmm, your attitude is all wrong friend. You willingly admit you know zero but still want to play with leverage  
If you know nothing, no leverage is still too much leverage, and $1 is too much money: why risk money when we have simulators now so that you don't have to blow up before learning how to play the game? 
This makes no sense at all.


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## Trembling Hand (20 May 2013)

boofis said:


> This makes no sense at all.




Yep....... Starting like the other 100,000s who came before.......


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## Denkiblue (20 May 2013)

Ok - seems I need to educate myself further in other places!
I do really appreciate the time you guys took to point things out.

It seems I should really quit while I am ahead then?


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## McLovin (20 May 2013)

Denkiblue said:


> It seems I should really quit while I am ahead then?




If it was as easy as you make it sound then it wouldn't be easy.


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## Trembling Hand (20 May 2013)

Denkiblue said:


> Ok - seems I need to educate myself further in other places!
> I do really appreciate the time you guys took to point things out.
> 
> It seems I should really quit while I am ahead then?




Nah keep it up.  You have chosen the path of quick thrills and a bit of fun instead of long term learning and survival to maybe one day have a shot at earning serious money. You are not the first.


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## Knobby22 (20 May 2013)

The market is like a runaway train but you my friend have a CFD account.

http://www.youtube.com/watch?v=D_UVH-N5-V0


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## Denkiblue (20 May 2013)

Ok, I will be following your advice and doing more research.

1. I have found some recommended CFD books on this site and have few others to check out.
2. I will try to greatly reduce the margin I use - reduce from 10% to 1-3%.
3. I will still aim to have 2 accounts to protect somewhat against a 'crazy' drop...
4. I certainly accept that I may lose.

Do you have anything else for me?


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## burglar (20 May 2013)

> ... On indices like DJIA - what size of one-time-fall etc., would reasonably be expected? ...




Google "flash crash"


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## Trembling Hand (20 May 2013)

Denkiblue said:


> Ok, I will be following your advice and doing more research.
> 
> 1. I have found some recommended CFD books on this site and have few others to check out.
> 2. I will try to greatly reduce the margin I use - reduce from 10% to 1-3%.
> ...




Yeah,
Find out what positive expectancy is.
Find out what a system really is.
Try simming until you have 500 trades and are profitable.
Try finding out what fixed fractional position sizing is.
Find out exactly what you are trading (where does the "wall street" CFD price come from)
Find out yourself what the answer to this question is,


> On indices like DJIA - what size of one-time-fall etc., would reasonably be expected?
> (I know this is like asking how long a piece of string is) but, 500points, 1000points, 5000 points???
> I mean ANYTHING can happen of course - but what would occur in the 'reasonably probable' range?




the journey will be very beneficial.


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## Denkiblue (20 May 2013)

Thanks once again for the help, I'll get onto those points listed by Mr. Trembling Hand.

I am looking forward to sifting through historical data to try and answer my own question re: crash size.
I assume it is not difficult to find this info on the web for free?

For what it is worth - I have completed about 120 trades in the last 5 weeks.

And thx for the 'flash crash' info - 1000 points hey (~9%), that is not too bad in my book for a worst-case scenario? (I obviously have a lot to learn!).

Cheers,


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## chops_a_must (20 May 2013)

You also need some basic stats.

Whether this is from paper trading or simming, or back testing, it doesn't really matter.

But it means you have to define what it is you are actually doing.

And if you can't, you'll need to start/ stay in stocks.

If you want to "punt" on direction, I'd just buy calls and puts. Much easier.


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## cbc (21 May 2013)

Hey Denkiblue,

Have you compared you 120 CFD trades with any options or futures contracts on the same underlying?

I'm sure youl find that there would be quite a difference on your end of day profit.....

TBH I kinda frowned when I heard that your were with IG,  blood suckers....


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## Black duck 07 (22 May 2013)

ROE said:


> You want to play the market for long term but you leverage 8-10 to 1?
> 
> This is not long term investing, this is a bet on the market direction...
> 
> ...




That is interesting as I did not know CFDs are banned in USA. I am looking at the Australian Stock Report and they are big on CFD stating unrealistic profits,

Cheers

Black duck 07


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## banco (22 May 2013)

I wouldn't trade futures with IG.  They play a pretty straight bat with ASX shares but futures/forex are another story.


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## skc (22 May 2013)

Denkiblue said:


> *1.* 1 500-dollar Wall St. position (DJIA) for every $5000 in account size.
> *2.* Target revenue range on one position: $100 - $1000 (based on current situational-risk)
> *3.* Do NOT sell.
> *4.* Do NOT close in the RED
> ...




1. What's a $500 Wall St position? Surely you don't mean $500 per tick? 

3/4. Where do these rules come from? With your "$500 wall street" position, how many points against you does it take for you to lose your equity?

7. If you are prepared to hold for a week, you better know the possible range over a week...

Also, can you explain how having 2 accounts offer you protection of any kind? 

Everything you've described points to the fact that you will blow up sooner rather than later. I'd pause and really think about what you are doing...

Good luck.


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## RADO (22 May 2013)

The $500 his referring to is the margin per contract which is in US dollars so really its around $512.45 AUD per contract.


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## skc (22 May 2013)

RADO said:


> The $500 his referring to is the margin per contract which is in US dollars so really its around $512.45 AUD per contract.




That's the margin. It's $10 per tick so it has $150k face value given that the DJIA is 15,000 points.

If DJIA is down 250 pts he's down $2500, or 50% of his starting capital.

If DJIA is down 500 pts over the week... the fat lady sings.


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## RADO (23 May 2013)

skc said:


> That's the margin. It's $10 per tick so it has $150k face value given that the DJIA is 15,000 points.
> 
> If DJIA is down 250 pts he's down $2500, or 50% of his starting capital.
> 
> If DJIA is down 500 pts over the week... the fat lady sings.




Yup.


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