Can you really make money with CFD trading – Find Out

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Barefoot Investor

Why on earth would anyone want to trade financial products that could potentially wipe you out? This is why.

I went out to the flicks the other night to see The King’s Speech. Great movie – horrible pre-show entertainment.

No sooner had I popped down my popcorn and settled into my seat than an ad touting the latest investment fad, Contracts for Difference (CFDs), came on.

The slick ad looked liked a movie: fast-moving shots of city skylines, goldmines, and wealthy dudes doing wealthy dude stuff. It even had its very own Hollywood-style voiceover man.

He seemed to be suggesting that, because everyday news events tend to impact financial markets, the choctop-chomping suburbanites sitting with me in the cinema could profit from these events by trading highly speculative derivative contracts.

Talk about a horror movie.

What are CFDs?

If you’re trying to piece together what the hell a CFD is, you’re perhaps one of the lucky ones. CFDs essentially allow you to make highly leveraged bets on which way a share price (or the price of gold, currencies, or two flies crawling up a wall) will move in the short term.

You only have to come up with an initial margin (think of it like a deposit) of 5 per cent of the value of the share, but the CFD gives you exposure to 100 per cent of the price movement. If the share price moves the wrong way, you can be potentially exposed to unlimited losses.

One of the best descriptions of CFDs I’ve heard comes from none other than ASIC Commissioner Greg Medcraft, who said ‘they’re basically a way to borrow to gamble’.

CFDs aren’t allowed in some countries because they’re too risky, and earlier this month the Financial Ombudsman Service called for investors to be banned from trading CFDs unless they can prove they understand these highly complex derivatives.

However, writing about CFD providers is fraught with peril. They’re the financial services’ equivalent of Scientologists: rich, powerful, and not afraid to throw around their influence.

‘How I Lost $500k’

One of the best descriptions of CFDs I’ve heard comes from none other than ASIC Commissioner Greg Medcraft, who said ‘they’re basically a way to borrow to gamble’.

So with that let me introduce you to John*, a 31-year-old bloke from Melbourne who thought he’d give trading a go. I spoke to him this week.

Why on earth would anyone want to trade financial products that could potentially wipe you out? Here was John’s thinking:

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If he invested $10,000 of his savings into the share market and it went up 10 per cent he’d make $1,000. Big deal.

If he invested $10,000 of his savings into CFDs and it went up 10 per cent he’d make $10,000. Big deal!

John was completely out of his depth. He didn’t realise that trading is like a game of tennis – you need to know who your opponent is.

The people he was playing against were in many instances the big financial institutions, like Citibank, Goldman Sachs, Barclays, HSBC and CBA. These institutions’ employees aren’t so much traders as risk managers – people with advanced degrees in mathematics, years of training, sophisticated financial models, and collaborative trading offices all around the world.

“I was trading the price of gold, oil, the ASX 200 and currencies”, said John. “All the action happens overnight in America, while you’re asleep – or trying to sleep.”

“I did okay at the start, but I didn’t really know what I was doing. For me, all too often I’d get this kind of overriding, heart-racing moment where I thought things are going to turn around.”

“So I’d go deeper, and deeper … while the market kept going the wrong way. Too many times I woke up to find out I’d received an automated margin call email (to top up his trading account because of losses) from my CFD provider.”

Barefoot: “Wait, wait, wait … how many times did that happen?”

John: “Oh gosh, I reckon about 25 times … I think I lost about $250,000.”

It gets worse.

“My trading strategy didn’t involve stop-losses (a risk-strategy that automatically exits your position at a predetermined price, so you ‘stop the loss’). I didn’t see the point, because in many cases with a stop loss you’d get sold out at a loss, and then the market would move back and you would have ended up making money.”

But that didn’t happen one Friday night a few months ago.

“When I went to bed I didn’t realise that the market was having one of its ‘corrections’. I woke up in the morning and checked my account. I’d received multiple margin calls overnight that had gone unanswered, so my CFD provider sold my positions out.”

“I stared at my computer screen. I had just lost a further $250,000. In one day.”

“It wasn’t like I’d bought $250,000 worth of shares and they’d gone down to zero. I never had that money in the first place. And now I had a few days to come up with $250,000 to cover my side of the trade.”

Luckily John could afford to lose $500,000. He’s a successful financial advisor.

Is it possible for an amateur forex trader to make sustainable profits trading forex? How, specifically, do you make money in forex? Does a broker pay quarterly dividends?

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I started when I was 18 years old. Without any knowledge I made 20k from 5k USD.. But guess what I lost all when started increasing position when price goes against me. So huge trend killed my deposit.

Then I started to learn technical and fundamental analysis. I have all this education but I keep losing even more.. I always asking myself same question: “What the hell is happening…How I can lose again and again If I already got this skills…”

I was searching every day for profitable strategy, readying forums… All this strategies where working on period of time. And I was losing again and again.

Is It Possible to Make a Living Trading Stocks?

What You Need to Know About Trading for a Living

Image by © The Balance 2020

Stock enthusiasts have probably been asking whether it’s possible to actually make a living trading stocks for a very long time.

The idea that you could quit your job and support yourself just by trading stocks is fascinating, and to some seems like an impossible fantasy. It is possible to make a living trading stocks, but the real question is if it’s probable.

Novice investors buoyed by their success with paper trading simulations may take the leap of faith and decide that they’re going to earn their living from the stock market. Some make it, but the vast majority just blow their accounts up. Studies on day trader performance have shown that most lose money over the long term.

Still, some people make a good living trading stocks and have done so successfully for years. Some people actually do sit on a tropical beach, or in a mansion high up in the Hollywood Hills, armed with only a laptop and an internet connection, carving out a living from the market.

That, of course, is the allure of trading for a living: freedom. Freedom to be your own boss, ti work where, and when, you want, and to be financially secure.

The reality is that trading for a living is a tough job, one that requires a very specific skill set and risk tolerance that most people don’t possess.

Trading Requires Diligence

Being able to day trade for a living successfully means reaching a level of focused excellence that most people will never achieve, no matter what career they choose. It’s the difference between being a movie extra and an Oscar-winning actor or between playing in a pick-up football game in the park and being the Superbowl MVP.

The point is not to discourage someone from pursuing their dream, but it’s important, if you want to pursue day trading for a living, to go into it with your eyes wide open.

Get Educated About Trading

Spend some serious time educating yourself about everything you can related to trading. Most likely, you want to be a day trader look for short-term gains, not an investor seeking long-term profits, so put in the hours necessary to give yourself a strong understanding of the world you’re about to enter.

The Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and the Internal Revenue Service (IRS) all offer valuable information for day traders. Introductory books on strategies and theories will help you get acquainted with the playing field.

Choose a Good Trading Strategy

To get started trading, you’ll need to develop a sound trading methodology, one that takes advantage of volatility, yet always keeps risk management as its core principle. Ideally, this methodology should be tested over months or years, in all different market environments, first with a demo account and then with real money.

Set Aside Some Income

Financially, many experienced traders suggest having at least one year’s worth of income set aside before you start. This is not the bankroll that you will trade with— you’ll need separate capital for that, in amounts that vary depending on the kind of day trading you’ll do—but money that you will use to pay your living expenses, including for housing, insurance, and food.

Having this financial cushion will give you peace of mind, allowing you to begin your new career without the pressure of having to trade to “make the rent.” You’ll also need to have a record-keeping strategy ready for tax season.

Prepare Yourself Mentally

Psychologically, you will need to steel yourself for the income inconsistency that will likely accompany your trading.

The goal when trading for a living is to have a reliable and consistent revenue stream, but that will take time, diligence, and luck to achieve. Having to bear the daily fluctuations of your income can be tough on the psyche over time.

The speed, fluctuations, adrenaline, and comparatively high loss ratio relative to wins can make investing a jarring experience for new day traders. This runs against the basic human impulse to “win” as much as possible. You’ll need patience and cool-headedness; otherwise, the stress of day trading can wreak havoc on your emotional well-being.

These are some of the basic things to be aware of if you are going to try to make a living trading stocks. And though the odds are against your success, if you’re one of the few who can master this art, you’ll enjoy excitement, independence, and financial rewards.

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