The Dangers of CFDs

[nathanhulls]

Well I wish I had spent 9 months reading a forum like this back in 2005 before I lost a good solid 5 figures (middle of the 5 figure range too) of borrowed money trading CFDs and I'm only 28.

So rather than repaying a mortgage with a house to show for it i'm working to pay off debt which i have nothing but an expensive learning curve to show for it, and the market maker smiles all the way to the bank as another one bites the dust.

Anyway my sob story over, i'm up out of the dust, brushed myself off and I'm looking to educate myself, develop a solid trading system which suits my profile and lifestyle and I'm going to build some wealth for the long term.

Surely CFDs are a tool which if used wisely can benefit a traders overall strategy, if anyone has any good CFD trading strategies I'd love to hear from them.

Nathan
- its more blessed to give than to receive!

 

[acouch]

hi nat,
i suggest first you learn how to chart..
as a chart usually will let you know what is cooking ..
no point trading blind..
if you want to do that, i am sure there are a lot of charities out there are more than
willing to take your money ,and help the less fortunate
ac

 

[acouch]

a couple of examples..
one is eod chart, which i watch and look for a entry to hold..then look at a cfd to
take a postion at the best possible entry you can get on the day, as you know that you want to enter this stock, so it is just a matter of getting the entry right..bad entry = bad trade sometimes..
hope that these examples are of some help..
ac
as i have printed one aed from cmc i hope that this chart is the right one

 

[Trembling Hand]

Surely CFDs are a tool which if used wisely can benefit a traders overall strategy, if anyone has any good CFD trading strategies I'd love to hear from them.

If you developed a good system with proper position sizing you will soon find out that they are of little use. The only advantage that they supposedly have is the leverage but that is, as you have found out, Their BIGEST disadvantage.

Once you have a system that doesn’t expose yourself to large drawdown and certain ruin you will see that the leverage is of no use if not dangerous.

When setting a stop you find out how much you will be able to lose as a percentage of your account. You would base this on where you would admit you were wrong and close out the position.

If you have $50,000 account and willing to lose 2% max per trade that is $1000

if you buy XYZ @ $10.00 and set the stop at $9.50 then you can buy 2000 shares. You should only buy that many weather you are using CFDs or direct shares.

The only thing leverage should be used for is to possibly take on more positions. But that leads to problems to as most shares swing together if you have 10 positions on and they all gap down one morning you will find your account hit 20% or more in one day. Not Good.

Find a system that works without leverage first then ram it up with leverage once you know you are safe.

 

[Magdoran]

Well I wish I had spent 9 months reading a forum like this back in 2005 before I lost a good solid 5 figures (middle of the 5 figure range too) of borrowed money trading CFDs and I'm only 28.

So rather than repaying a mortgage with a house to show for it i'm working to pay off debt which i have nothing but an expensive learning curve to show for it, and the market maker smiles all the way to the bank as another one bites the dust.

Anyway my sob story over, i'm up out of the dust, brushed myself off and I'm looking to educate myself, develop a solid trading system which suits my profile and lifestyle and I'm going to build some wealth for the long term.

Surely CFDs are a tool which if used wisely can benefit a traders overall strategy, if anyone has any good CFD trading strategies I'd love to hear from them.

Nathan
- its more blessed to give than to receive!

Hello nathanhulls,

While perseverance is critical to success, so is applying what you learn, employing the right amount of caution, and doing the requisite amount of research.

There is a wealth of commentary on this site that can give relevant perspectives which directly addresses your question. All you have to do is to read it.

Respectfully, I've commented in reasonable depth on the CFD question several times now (ironically, even on this thread). Please do yourself a favour and read the comments by people like WayneL, sails, and ducati for example.

All you need to do is to scroll back through a range of threads and follow the posters that you like. Then you can search their posts in detail using the search functions.

I can tell you now that you can spend the next 9 months learning, but with a lot less risk. Please consider doing this before you venture out to risk another $50,000 +/-.


Best Wishes


Magdoran

 

[ithatheekret]

I take my hat off to successful CFDers , they are the real day traders with grit . Having tried CFDs as it was too expensive to short with my brokerage , even though it [the entry] was successful , I had a couple of sleepless nights over my position ....... it was AMP at a $26 short . I literally couldn't leave my desk during market time ...... even for a coffee and a doodoo . For fear of it blowing up in my face ........ it didn't as history showed but I managed a few new grey hairs out of it .

 

[jonojpsg]

I've only been into CFDs for a little while (six months) now and i can certainly see the dangers!! Definitely agree with position sizing and setting your stops right - it's all about protecting capital - if you want a look at a prime example (trading shares not CFDs) look at the AED thread. AEDblunder put 495000 into AED at $11 then watched it plummet while his paper value decreased by 65%!!!! Mate, if that's not a lesson in setting stop losses I don't know what is.

Anyway, I've been looking at the possibility of making a living just out of trading BHP CFDs! If I earn $300 a day, I can go close to that by buying 1000 BHP say at 43.00 then selling again at 43.30. I only have to put up 5% which is about $2000. With the sort of intraday moves you get on BHP, you could just about do this. Haven't perfected yet - but working on it

 

[ithatheekret]

I have a friend who only plays the banks , nothing else .

He says the mining boom is somebody elses story , each to their own . He is making a steady income from it though and is with CMC . He too doesn't care which way the market goes as long as it moves .

PS.. he has nothing to disturb him though ..... you know kids etc ..

 

[finnsk]

Anyway, I've been looking at the possibility of making a living just out of trading BHP CFDs! If I earn $300 a day, I can go close to that by buying 1000 BHP say at 43.00 then selling again at 43.30. I only have to put up 5% which is about $2000. With the sort of intraday moves you get on BHP, you could just about do this. Haven't perfected yet - but working on it

Most days the range on BNB is bigger if you can get it right both long and short and with only 500 BNB CFDs but be careful because when it moves it moves very fast

 

[Uncle Festivus]

I have a friend who only plays the banks , nothing else .

He says the mining boom is somebody elses story , each to their own . He is making a steady income from it though and is with CMC . He too doesn't care which way the market goes as long as it moves .

PS.. he has nothing to disturb him though ..... you know kids etc ..

Same here, I trade CBA almost exclusively on a daily basis now, PDN also a good day trade CFD leverage stock. Usually 1k or 2K shares at a time, maybe hold overnight sometimes. After a while each stock get's it's own personality, so you get to see predictable ticker patterns emerge, at roughly the same time of day sometimes.

After a checkered CFD career so far I have found that setting a daily profit from a smaller position is far less stressfull than trying to milk a single large position for the maximum gain. Be happy with lot's of smaller gains than a few big ones. If I make or exceed my daily profit target then I turn the 'puter off & go and do something that resembles a life .

The current market gyrations is or should be a CFD traders heaven, if played correctly.

 

[ithatheekret]

Can't agree more Unc little but often is marvellous .

 

[lbradman]

Positions sizing is number one when it comes to CFDs because of their leverage you can get. I'm only trading a maximum of $2500 for each trade and I only buy stocks on 5% or 10% margin meaning I only put in $250 for a deposit. I also do this because I've set my stop loss to be at $250 so as soon as my loss hits my deposit amount I get the hell out. Its a small amount to trade I know but slow and steady is the way I like to go about it.

 

[hangseng]

Positions sizing is number one when it comes to CFDs because of their leverage you can get. I'm only trading a maximum of $2500 for each trade and I only buy stocks on 5% or 10% margin meaning I only put in $250 for a deposit. I also do this because I've set my stop loss to be at $250 so as soon as my loss hits my deposit amount I get the hell out. Its a small amount to trade I know but slow and steady is the way I like to go about it.

The main problem being you are not trading in the 'REAL MARKET'.

As long as you know these and realise the CFD provider is who you are trading against and they know where your stops are placed. If you have total faith in what you are trading in then fine, otherwise you are CFD provider fodder and they know it. Position sizing is so important as is realising they are targetting your stops.

Just be aware OK.

Cheers to all of my friends (and chops

ASF is a great sharing forum, keep it up you are the protection from the manipulators.

 

[chops_a_must]

Cheers to all of my friends (and chops

ASF is a great sharing forum, keep it up you are the protection from the manipulators.

Lol! And a good evening to you as well.

Anyway, I've been looking at the possibility of making a living just out of trading BHP CFDs! If I earn $300 a day, I can go close to that by buying 1000 BHP say at 43.00 then selling again at 43.30. I only have to put up 5% which is about $2000. With the sort of intraday moves you get on BHP, you could just about do this. Haven't perfected yet - but working on it

Why not just trade futures and look at trading opens or something? Very high probability plays with good returns. I'm sure some people make a killing just trading the various opens around the world.

 

[hangseng]

Lol! And a good evening to you as well.


Why not just trade futures and look at trading opens or something? Very high probability plays with good returns. I'm sure some people make a killing just trading the various opens around the world.

Just stirring chops, keep up the good work mate.

 

[glenn_r]

The main problem being you are not trading in the 'REAL MARKET'.

As long as you know these and realise the CFD provider is who you are trading against and they know where your stops are placed. If you have total faith in what you are trading in then fine, otherwise you are CFD provider fodder and they know it. Position sizing is so important as is realising they are targetting your stops.

Just be aware OK.

Cheers to all of my friends (and chops

ASF is a great sharing forum, keep it up you are the protection from the manipulators.

I trade CFD's using a DMA (direct market access) provider which means I'm trading in the "Real Market" and really if your trading shares profitably there is no reason why you cannot trade CFD's profitably as they are just another margined product (i.e. margin loan) and if used correctly with the same position sizing and risk management as shares they are a very handy tool in the trading tool box.

But they are not the magic bullet for bad traders and I suggest new traders should stay away from them until they work through their trading plan and begin to trade with a positive expectancy.

Finally stay away from the "Market Maker" CFD's as HS suggests some MM providers do not play on a level playing field.

 

[dovetree]

Whether it is DMA or not is of little importance, even if DMA and the other side of you trade is your broker then the broker is actively working against you.
The final question you should ask is are CFD's subject to the same regulation as futures.... if not then ???

 

[Trembling Hand]

Whether it is DMA or not is of little importance, even if DMA and the other side of you trade is your broker then the broker is actively working against you.
The final question you should ask is are CFD's subject to the same regulation as futures.... if not then ???

I got to say you don't get much protection with Futures. It’s pretty much buyer beware. For example during the meltdown in August the Open interest was massively out. The SFE was saying that the SPI had 400,000 contracts open giving the impression that one side was going to get squeezed to hell but some large broker was not reporting matched trades. When they slapped the broker on the wrist the next day the Open interest dropped to 100,000. Pure and simple manipulation with no consequences.

Still I would always chose futures over CFD as I want my brokers interested in me hanging around rather than blowing up.

 

[Timmy]

Whether it is DMA or not is of little importance, even if DMA and the other side of you trade is your broker then the broker is actively working against you.
The final question you should ask is are CFD's subject to the same regulation as futures.... if not then ???

Trading DMA is of critical importance, completely different to trading with a market-maker.

 

[glenn_r]

Whether it is DMA or not is of little importance, even if DMA and the other side of you trade is your broker then the broker is actively working against you.
The final question you should ask is are CFD's subject to the same regulation as futures.... if not then ???

Dovetree,

Your wrong, when you use a true DMA provider the other side of your trade is either a equity seller or a buyer, the provider has no control or input in the trade.