CFD & Options Trading: If Educated & Managed is it Really Minimal Risk?

[zac]

I went to a free seminar the other week on CFD's, Options etc.
I know of a friend/acquaintance that does CFD's and did a course through some private company.
She seems to like it and do well.
Ive always been sceptical so I thought Id go to an info session to find out what its about.

Anyway from the info session and other research online it seems that CFD's if traded smartly, ie in companies with good fundamentals and where good risk management is in place, ie Stop Loss's or Guaranteed Stop Loss, then risk is minimised and loss;s too.

It seems that the loss's can be capped where as gains will be a lot more.
Is that true or am I missing something.
Anyway I listened to this guy at the following link :- CFD SEMINAR

Any comments on trading. The way he sells it he makes it sound ideal.

 

[wayneL]

I went to a free seminar the other week on CFD's, Options etc.
I know of a friend/acquaintance that does CFD's and did a course through some private company.
She seems to like it and do well.
Ive always been sceptical so I thought Id go to an info session to find out what its about.

Anyway from the info session and other research online it seems that CFD's if traded smartly, ie in companies with good fundamentals and where good risk management is in place, ie Stop Loss's or Guaranteed Stop Loss, then risk is minimised and loss;s too.

It seems that the loss's can be capped where as gains will be a lot more.
Is that true or am I missing something.
Anyway I listened to this guy at the following link :- CFD SEMINAR

Any comments on trading. The way he sells it he makes it sound ideal.

There has been lots of discussion on this already. Use the search function.

 

[zac]

Ive used the search and dont seem to be able to find a thread that discusses my query.

 

[wayneL]

https://www.aussiestockforums.com/forums/showthread.php?t=21516&pagenumber=

https://www.aussiestockforums.com/forums/showthread.php?t=1874&pagenumber=

 

[zac]

Ta
Thanks Wayne,
Those are more of a bitch session but I guess I will have to sus the info out in other ways.

 

[wayneL]

*Forgive him Lord, for he knows not what he says

There are pearls in there zac, just gotta look for them, just hope we are not casting pearls before swine (Jeez I am getting all biblical aren't I : )

Otherwise, ask questions here.

 

[zac]

LOL ta,

I guess its going to be hard to put into text here.

Im curious though is it possible though with stop losses and in particular a guaranteed stop loss that you have zero loss due to value falling?? ie if you get stopped out.

obviously there will be the cost of brokerage, interest and the guaranteed stop loss, of around $75 for a $1000 (10% margin) trade.

Im looking at trading CFD's and I know some people hype it up with huge returns of over 10% but i'll be happy to begin with of having returns of 2-3% while I start out and educate myself.

 

[skc]

LOL ta,

I guess its going to be hard to put into text here.

Im curious though is it possible though with stop losses and in particular a guaranteed stop loss that you have zero loss due to value falling?? ie if you get stopped out.

obviously there will be the cost of brokerage, interest and the guaranteed stop loss, of around $75 for a $1000 (10% margin) trade.

Im looking at trading CFD's and I know some people hype it up with huge returns of over 10% but i'll be happy to begin with of having returns of 2-3% while I start out and educate myself.

There is this thing called minimum distance where you can place your guaranteed stop loss.

Repeat after me.

"There is no such thing as a free lunch". "There is no such thing as a free lunch".
"There is no such thing as a free lunch". "There is no such thing as a free lunch".

 

[wayneL]

LOL ta,

I guess its going to be hard to put into text here.

Im curious though is it possible though with stop losses and in particular a guaranteed stop loss that you have zero loss due to value falling?? ie if you get stopped out.

obviously there will be the cost of brokerage, interest and the guaranteed stop loss, of around $75 for a $1000 (10% margin) trade.

Im looking at trading CFD's and I know some people hype it up with huge returns of over 10% but i'll be happy to begin with of having returns of 2-3% while I start out and educate myself.

If Options pricing was linear not dynamic, in other words if the price of an option did not change in relationship to the linear price of its underlying security, you might have a chance of zero loss.

But if this were so, they wouldn't exist because you would never get some dumb schmuck to take the other side of the trade.

The big problem with the scenario as put forth by unmitigated clowns such as the one referred to in the OP, is that they fail to consider the options price prior to expiry. A guaranteed stop loss on the CFD does nothing to prevent a loss on the overall strategy.

I'm not saying there is no chance of a profit over the long term, but this whole marketing induced fixation of x% returns per month is phoney and disingenuous, it's a furphy and ignores options pricing basics and synthetics.

Waste money by giving wads of it to people who rightly belong in Actor's Equity if you must, but experience will eventually give a harsh lesson in how these instruments work in the real world.

Anyone with a proper understanding of options basically roll their eyes at these absurd claims.

Conclusion - A better idea is expending money and effort in properly understanding options, not flashy toothed salesmen intent on enriching themselves via your gullibility.

 

[sails]

Ta
Thanks Wayne,
Those are more of a bitch session but I guess I will have to sus the info out in other ways.

Zac, perhaps you try it out for yourself and put a little of your hard earned money on the line - and then come back to the threads and see how true they are...

You probably need to understand more how it all works in practice, understand some of the market maker tricks and then you might have a better chance to understand what has been said in the threads.

All these strategies can make money in the right conditions and can lose spectacularly when the conditions are not favourable. Having a crystal ball to know the right conditions would be helpful.

And you could always paper trade for a little while to test out your system. However, paper trading doesn't take slippage such as wide spreads in volatile conditions into consideration. I have also heard of CFD stops being taken out even though the underlying market goes nowhere near there. So paper trading will only help to a degree when you are dealing with derivatave markets.

And how would you like your protective CFD position to be stopped out unnecessarily and then the market turns severely against your short position?

Good luck...

 

[zac]

Thanks for all your advice and words,
Its clear as mud LOL,
Ive just opened a paper trading account and will learn the ropes slowly.

 

[wayneL]

...but experience will eventually give a harsh lesson in how these instruments work in the real world.

Spooky!

When I wrote that I didn't realize how soon my prophesy would play out.

 

[zac]

Spooky!

When I wrote that I didn't realize how soon my prophesy would play out.

Hi Wayne,
Whats the go with that?
Something happen?

For info,
Ive been reading a bit on CFD's and will be dabbling with them very soon.
Ive enquired with other people (not on this site) about their experiences.
So its very real and clear to me I WILL lose money through this process but the gains WILL also be more than the losses, as long as the METHOD/STRATEGY is sound and followed without deviation.

Im actually thinking about starting a blog to write about my journey.
Especially if anyone is keen on following it.

Im still getting educated but my start will be around a months time or early October.

 

[megatron]

Hi Wayne,
Whats the go with that?
Something happen?

For info,
Ive been reading a bit on CFD's and will be dabbling with them very soon.
Ive enquired with other people (not on this site) about their experiences.
So its very real and clear to me I WILL lose money through this process but the gains WILL also be more than the losses, as long as the METHOD/STRATEGY is sound and followed without deviation.

Im actually thinking about starting a blog to write about my journey.
Especially if anyone is keen on following it.

Im still getting educated but my start will be around a months time or early October.

I am interested in following your CFD journey. Please email me your blog details.

As to my first experience with CFDs, I had a realised loss of 20k in 2 days in my first attempt back in the day when I got my commsec cfd account. My advice to you is to not buy in larger volumes than you can handle in the local market unless you get more experience even though you only pay a small margin initially & associated transaction costs eg if you buy 1000 BHP CFDs, and it falls by $1 (ie moving against you), you only lose 1000 but if you bought 10,000 then obviously the results are much worse. The problem is you could afford it because the margin was so low, so my lesson I learnt was just because I could afford it, I should not have bought such large quantities as it was equivalent to gambling. I was like a child in a toy shop because I could afford everything I once could not as 10000 BHP @ 40/share is not something I can afford to buy outright. Obviously, I could not continue to keep pumping money in so had to take the loss. Of course, I have learnt from my lessons and actually diversify rather than putting all my $$$ on one share.

the other tip is if you find out the market is moving against your position and you think the adverse movement is going to be sustained (for the rest of your session if daytrading), get out immediately and then take the opposite position in the CFD. ie 2x your original trade but going in the other way, assuming same number of cfds. This way you can at least recoup some losses as well as cut them.

ps ignore the intraday interest costs & brokerage as they are immaterial and you get a whole new perspective on transaction costs, they do not matter to you when buying CFDs since the profits/losses significantly outweigh them

pps if you get more experience, I found cmc markets is much easier than the other mainstream providers for cfd trading and they have foreign cfds and the best thing is their platform is quite easy to use and you can buy sell all the currencies. My work firewall blocks CMC's trading platform so I am forced to trade australian cfds during work hours using commsec but overnight I use cmcmarkets at home to trade FTSE and DowJones. Thats where you can make big bucks (because those stocks have more volatility and have bigger price swings) and without worrying your boss disrupts you by calling u into his office for a long tedious meeting causing you to frantically get out of your trades (at a loss). Not only that but normal Aussie stockbroking is less than 10 bucks per trade.

 

[gbdonkey]

Good stuff Megatron. From my current situation & experiences I totally agree with your post. My trading FTSE / Dow / Dax after work is working out - not enough to buy me a Porche or nothing, but good enought to bump me up a few tax brackets (I look forward to paying tax for my trading, as it would mean that I am making money/Capital Gain).

As relatively easy it is to trade F/D/D-CFD it has taken me about a year of doing to get to this point of getting used to the markets (plus the odd margin call from time to time ).

IMO in brief - Zac -open an account , stick out your cash (ballpark $1,000) , trade small - real small. Enjoy the experience and I hope you make some extra money. Enjoy it most importantly.