Richard Russell: “A hard rain lies ahead”

Love him or hate him, 85-year old Richard Russell is the doyen of investment letter writers – having been at it for more than half a century – and his views as expressed in his daily Dow Theory Letters always make for stimulating reading. The paragraphs below summarize the R man’s “big picture” view of the U.S. stock market.

“I want to say that I have a number of reasons for being convinced we have been in an upward correction [referring to the rally that commenced in March 2009] in an ongoing primary bear market. Some of this is based on my interpretation of the 50% Principle, plus my analysis of the very poor action of the “internal market” [i.e. market breadth] over recent weeks.

“I envision the Dow dropping to test, and possibly violate, the 6,547 level. I don’t know whether this will take place this year, but I wouldn’t be shocked if it does. It would not surprise me if the Dow tests the 6,547 level. And if that happens, I can almost guarantee the US will have sunk into the much-feared “double-dip” recession.

“If the US begins to shrink into a double-dip recession, I expect the Obama administration to go ‘wild’ with new stimuli and ‘make-work’ programs, all of which will be financed with higher taxes (‘soak the rich’) and a further major expansion of the Federal Reserve balance sheet. I would also expect every central bank in the world to simultaneously open their money-printing spigots wide, wide, wide.

“Conclusion in a nutshell: the secret of the forthcoming picture lies with the action of the U.S. stock market. Again I’ll remind my subscribers that the function of the stock market is to discount the future, not to mirror the present. All news is history. Or as Wall Street puts it, “news known is news discounted”.

“One of the biggest mistakes amateurs make is to think something they know is unknown and not already discounted by the market. Despite this, the media insist on describing every move of the stock market as being a reaction to some current event or some new government statistic. They couldn’t be further off the mark. As I read it, the poor action of the current stock market is telling us that the future for the U.S. is bearish and a hard rain lies ahead.

“At this juncture, sophisticated, wealthy people are not concerned with increasing their fortunes, rather they are searching for ways to conserve what wealth they have.”

Source: Dow Theory Letters, July 19, 2010 & http://www.investmentpostcards.com/2010/07/21/richard-russell-%E2%80%9Ca-hard-rain-lies-ahead%E2%80%9D/

Three Bad Reasons for Pursuing Trading as a Career

When I talk with traders who are having problems, I often find that the root problem is that they have pursued work in the financial markets for the wrong reasons. Here are three of the most common problematic reasons that draw people to trading:

1) The Thrill of Gain – While this often masquerades as a passion for markets, a little observation reveals that these traders have little interest either in markets that they don’t trade or in markets while they are not trading. The interest in market action often reveals addictive patterns, in which the roller coaster rides of gains and losses become more valued than the achievement of a smooth, upward sloping equity curve. This leads to overtrading and painful emotional ups and downs.

2) The Need for Independence – These traders are drawn to markets because they don’t want to have to answer to someone else in a structured job. The problem with this pattern is that the very need for independence that leads people away from structured careers also leads them away from the kind of structured practice and preparation that are necessary for trading success. Just as these traders don’t want to be tethered to a 9-to-5 career, they rebel against being tethered to markets. This shows up as poor discipline, poor preparation, and difficulty sustaining even modest efforts at performance development (such as keeping daily journals).

3) The Need to Make It Big – Many traders try to use performance in the markets, not as an expression of their competence, but as a desperate attempt to prove it. They don’t feel successful in other endeavours and are using markets to try to be a success in life. As a result, most of their self-esteem eggs are in the trading basket. That becomes threatening and stressful when inevitable trading slumps occur. Worse still, such traders often feel a need to make more and more to fill the hole of lacking self worth, eventually leading them to take too much risk and blow up.

What is the common theme among the three groups of traders? They are using trading to act out (and try to resolve) personal issues that are separate from risk/reward and opportunity in markets. Their needs lead them to place trades more for psychological reasons than logical ones.

Source: Brett Steenbarger

10 Rules for Better Trading

Rule 1: Believe you can win. If other traders can do well in the market, so can you. However, if you don’t have enough courage and confidence in yourself, you will never achieve success. The events over the past year have tested many people in this regard and some now think the game is rigged against them. Nothing could be farther from the truth as opportunities remain. Those who will win in the markets first start by believing they can do it. Then they back up that strong belief with serious hard-work and determination to find their trading edge. However, it starts with you first having faith in yourself.

Rule 2: Don’t be seduced by results. You must stay in the present and focused on executing each trade to the best of your ability. Don’t let yourself think about how much you’re going to win (or lose) in the market or how great of a trader you are or not, but instead focus on what matters most – each and every trade you make. Do that and the results will take care of themselves.

Rule 3: Sulking won’t get you anything. The worst thing you can do for your prospects of winning is to get down when things don’t go well. If you start feeling sorry for yourself or thinking the trading gods are conspiring against you, you’re not focused on the next trade. Good traders readily accept their mistakes and move on to the next trade. They don’t let one bad trade carry onto the next one.

Rule 4: Beat them with patience. Every time you have the urge to make an aggressive trade, go with the more conservative one. You’ll always be OK. The moment you get impatient, bad things happen. In tough markets, stay patient and let others beat themselves.

Rule 5: Ignore unsolicited advice. You’ll have lots of well-meaning friends and experts who want to give you advice. Don’t accept it. In fact, stop them before they can say a word. Their comments will creep into your mind when you are trading and conflict with your own strategy. If you’ve worked on your game, commit to the plan and stay confident with it.

Rule 6: Embrace your personality. The key is to find what works best for you. There are many approaches out there, but there is only one trading approach that will utilize your best skills and talent to create and sustain an edge. The worst mistake you can make is to simply embrace a strategy of someone else that doesn’t match your own personality and strengths.

Rule 7: Have a routine to lean on. Every trader should follow a mental routine on every trade. It keeps you focused on what you have to do, and when the pressure is on, it helps you manage your nerves. You may not have control over the market, but you have control on how you trade the market. Having a routine will inject consistency that will keep you calm under pressure.

Rule 8: Find peace in the market. The market has to be your sanctuary, the thing you love, and you can’t be afraid of making mistakes. Yes, you’ll experience both good and bad times, but you must enjoy and revel in the challenge.

Rule 9: Test yourself. Don’t look for easy trades and setups at all times. Test yourself by working hard trades and difficult markets in order to test and improve your skills. For example, if you’re uncomfortable with trading options, spend a month just trading options. If you’re uncomfortable with shorting stocks, spend a month shorting stocks. We only get better if we constantly test what we think is most difficult.

Rule 10: Find someone who believes in you. Having confidence in yourself is important, but it helps to have someone who believes in you, too, whether it’s a spouse, a friend, a teacher, or a mentor. No man’s success can be entirely attributed to his own actions. You must surround yourself with people who believe in you at all times.

This is a powerful set of trading rules that will serve you well.

Source: Damien Hoffman

Brokerage On Index CFDs – How Do CFD Brokers Make Their Money?

What is US Dollar Index. When anyone starts trading financial products for the first time, the trading costs involved are one of the most important criteria to consider. That is what makes trading index CFDs such a great product as they are generally commission free.

So the question most people ask is how can CFD brokers allow people to trade index CFDs commission free?

The reason CFD brokers allow you to trade index CFDs commission free is the fact that they have a spread on the index that you are trading. The spread is the difference between the first buyer and the first seller.

If we were to have a look at the Aussie 200 index for example the spread may be two or three points. The first buyer might be at 4000 and the first seller at 4002. As you can see there is a two point spread and so if we traded at one dollar per point then buying at 4002 and selling at 4000 would result in a two dollar loss. That two dollar loss is in effect your brokerage.

Trading Index CFDs

So as you can see there is no commission when trading an index CFD as in this example, but you will notice that if you got in and out when the market had not moved you would suffer a $2 loss. So whilst you may consider that you are getting the product commission free you are in effect being charged a small amount of brokerage. The great thing about this product is that the spread on an index CFD is usually kept to a minimum.

Free brokerage or $100 round trip?

There is no doubt that when you first starting out an index CFD at $1 per point is a brilliant option to consider. However, you can begin to see if you traded 25 contracts at 2 point spread your effective brokerage would be $50 to buy and $50 to sell making it a $100 round-trip.

Given the recent volatility of the Australian market and worldwide markets it becomes easy to see why one dollar per point is a very viable option. Even on the Australian market, which may move 100 points a day, at $1 per point you could be making or losing $100 a day.

Beware excessive overnight financing charges

The other reason CFD brokers are able to provide an index CFD commission free is that they charge an overnight financing rate which may be as high as the RBA rate plus or minus 4%. This means if you are holding an index CFD trade for a year you would be charged 4.25% +4% which equals 8.25% per annum calculated back as a daily rate. Always keep in mind that this financing rate is charged on your total position size which means it can get quite expensive allowing the CFD broker to pocket that finance. Find more information about Forex News Straddling Strategy here.

Do CFDs Suck?

Many novice traders blame CFDs for their losses and even may say CFDs suck. Losing money can trigger an emotional response and novice traders may blame someone else for losing money.

Losing money is not due to the use of CFDs (Contracts for Difference) it is the decisions that the trader made. It is very important as a trader that you take responsibility for your actions, both win and lose.

Leverage Is A Double Edged Sword

CFDs trade on leverage where a small amount of money down gives you access to a large position. This can result in very quick gains or losses as the market moves. If you lose money trading CFDs do not blame CFDs and say that CFDs suck.

Using stops on every trade is an important part of your risk management. If you do not use stops then you may not be ready to become a CFD trader.

CFD Brokers Deliberately Hit Your Stops

Some traders think CFDs suck because the broker knows where your stop sits and can then move the price to these levels. After hitting your stop the market then turns around and moves again in the direction you expected. Despite being correct you end up losing money.

CFD brokers are not inclined to chase your stops as they have other more important things to do. Sometimes a trade will hit my stop and reverse and at other times it will move very close to the stop and reverse. It can go either way. Place your stops thoughtfully and in a place where they will not be hit by normal movement.

All the traders in the market create the price movement and you are giving a CFD broker too much credit if you think they can move the market. Accept that you will be stopped out at times even if you have placed your stop correctly.

Re-quotes Rip Off Traders

It is possible to think that CFDs suck because you are re quoted a higher price when you try to buy CFDs through a market maker. Re-quotes are not a rip off they are used because the quantity you wish to trade can not be traded at the price level you specified. There is simply not enough volume in the underlying market.

The difference between the re-quote and the price you placed your order at is called slippage. This is accepted when buying stock as you may execute some of your order at one price and some at a higher price where there is sufficient volume. Your average price is then higher than your original order.

A market maker can only execute the whole order or none of it, partial fills are not possible, so a re-quote is provided at a price level that allows them to execute the complete order. Re-quotes are not about ripping traders off, but just reflect the underlying execution of the order.

Trading Is Your Responsibility

It is never the trading instrument that is the cause of bad performance it ultimately is the trader. There is no point in blaming the market, the broker, your partner or CFDs it comes down to your decisions.

A trader must take responsibility for his or her results and with this belief system in place it is possible for the trader to change their outcomes. If you think the rest of the world is driving you crazy, you will have to send the rest of the world to a psychiatrist for you to get better.

Source: Jeff Cartridge

Stock Vs CFDs

Which is better to trade CFDs or stocks? The answer to this question is not obvious and it will depend on what you want to get from trading. Looking at CFDs vs Stock we will highlight the key differences.

Cash, All or Nothing

When trading stock you require 100% of the cash to buy the stock. It is possible to borrow some of this money to invest using a margin loan, but you will still be required to provide at least 30% – 40% of the amount of stock you are purchasing.

CFDs require only a small amount of cash up front to buy stock, as little as 3%. The profit potential from CFD trading is much larger than stocks with returns of up to 15 times possible.

When it comes to making the most of your capital CFDs win easily against stocks.

What Happens When It Doesn’t Work?

The other side of leverage is risk as leverage amplifies both gains and losses. The most you can lose when investing in stocks is 100% of your capital, assuming you have not borrowed any money to invest.

It is possible to lose more than 100% of the money you invested in the first place with CFDs, so risk management is very important.

While it is possible to manage your risk when trading CFDs in the battle of CFDs vs Stock the lack of leverage when trading stock makes risk management much easier with stock.

The Cost of Doing Business

Brokerage and interest charges are the two main costs of trading when looking at CFDs vs stock.

CFDs are more expensive than stocks when you consider finance charges, because there is no interest charged on stock.

It will depend on the balance between higher interest costs and lower CFD brokerage costs as to which is cheaper CFDs vs stock. The longer a position is held the advantage will swing in favour of the stock holder.

No Tax, Is That Possible?

One of the reasons that CFDs were originally developed was to get around stamp duty that was payable on stock purchases. CFDs were exempt from stamp duty.

Australian traders will notice a difference between CFDs vs Stock when it comes to tax. There are no franking credits attached to CFDs and the 12 month capital gain discount also does not apply. There are tax advantages to stocks in Australia.

Tax advantages vary dramatically from country to country so it is hard to call a definitive ruling here in the battle of CFDs vs stock.

CFDs vs Stock, The Winner Is

In conclusion in the battle of CFDs vs stock there is no clear winner, it will depend on what is most important to you. CFDs offer more upside potential with less capital investment due to the leverage available. The risk associated with CFDs is higher because of the same leverage, so managing risk is more important to the CFD trader than the stock trader.

CFDs can be cheaper with low transaction costs and work well for the active trader. If you wish to hold a position for months or more then stock has an advantage as there is no interest cost to pay. I personally prefer CFDs as I actively manage my risk and CFDs provide access to bigger upside.

Source: Jeff Cartridge

CFD Trading Introduction

What is CFD?

CFD is the Contract for Difference that is traded, from which, person profits from the changes in prices of shares, indices, commodities, currencies etc. in market.

If person bought CFD on the share, which is $4.00 and price goes up to $4.40, then that person makes the profit. Thus, in case 500 CFDs were bought, then person will make $200.

And profiting from increasing markets CFD trader will as well profit from the falling market that is known as the “Short Selling”.

CFD’s are also traded on the leverage & are famous for this cause. Leverage CFD generates in stock market is 10:1 that means CFD trader will profit very fast without any need to buy & own shares. It as well means trader will profit from smaller rises or else falls in market because of this leverage.

Even if though you are a normal person you will learn CFD Trading by the different courses, which are accessible and make substantial revenue in case you learn system & become very good at the CFD trading.

Benefits of CFD Trading

Leverage

Leverage increases profitability of the trader’s potential investment by 10:1

Short Selling

Also profiting from rising market, and CFD trading allows trader to gain from falling market

Shorter Trade Times

Leverage of CFD allows CFD trader to make some profits from small movements in a market. It means CFD trading will take place over some days to weeks instead having to own share for years on end in order to make the descent return.

Capability to Set-up Stop Losses

Stop loss is an ability to set predetermined level to minimize CFD traders losses. For example, if CFD was bought at around $42 and trader is worried it may go down, stop loss can be placed at, $41.50 so that in case it trades at that stage trader can automatically sell out the position prior to it goes lower.

Trade in Evenings

Lots of CFD traders have got day jobs, and checking share during day is impossible. The CFD suppliers allow traders to put trades in evening when market is closed. With “if done” stop loss order, CFD trader will not need to look at market during day. This choice is fast as well as makes it simple to profit by using a CFD advantage on every day basis.

Markets

With contracts for difference you have a huge range of markets starting with share markets (including American, European and Asian market), commodities, currencies, indices, interest rates and much more. Just one broker gives you access to all those markets. Besides you can also trade futures or spots.

No Stamp Duty

When buying shares in the UK you have to pay 0.5% stamp duty on every transaction (no need to pay stamp duty when you sell shares). With CFD you do not pay stamp duty as contracts for difference are derived product and thus you do not buy actual shares.

Trade Futures with CFDs

Futures trading involves people making contracts where the payments for the commodity involved are to be made in the future at a specific time. Usually, the buyer and seller know the value of the asset and both of them agree when the exchange is to be done. Futures trading with CFDs is where the buyer does not have to completely buy and own the commodity. This way, you do not have any rights over the shares or commodities for which you trade.

Contracts for difference or CFD trading is a type of trading where traders can trade on a short term basis and get some profits out of it. CFD profits or loss normally arise from the difference in the price of the future when and at the end of the buying period. Hence, the outcome depends on the performance of a share in the market. This is usually a contract between two people and depending on the position you have taken, you can either gain or lose. With CFD trading, you have two options in that you can trade long or short. Trading long means that you anticipate the prices will rise while trading short is when you expect the prices to fall.

When you decide to trade CFDs, you have to pay a certain amount of money as commission for the trade. The commission normally depends on the value of the asset in question since it is a percentage of the value of the asset. CFD trading accounts are offered by a number of companies and most of them give the advantage of being able to trade day and night. Thus, traders can access the market during the night and find contracts. These trading accounts come with different features which make it vital for any trader to compare CFD trading accounts to find the most efficient.

Many traders who use CFD trading accounts normally want to get all the benefits of trading futures without the need to own them. Perhaps the good thing with trading CFDs is the fact that you can control losses easily. This is because you can exit from trading anytime when you feel the prospects of gaining are slim. Anyone can trade CFDs since they are not complex and the costs involved are minimal.

One way to compare CFD trading accounts is to look at the commissions involved when buying and selling. The other is to find any other underlying fees you may be required to pay for all your trades if any. You can also compare CFD trading accounts based on whether it is possible to trade on other investment options apart from futures and whether the account provides all the tools you will need in the trading process. The one thing that should give you more reason to trade CFDs is the fact that you get all advantages associated with leveraging. This type of futures trading is quite common nowadays and this is because of the many advantages it provides.

The Psychology of Trading

Perhaps the most critical characteristic shared by successful investors and traders is their psychological approach to the market. All forms of financial investments have foundational knowledge that is essential to success in that market. I am not suggesting that you can simply think the right way and trade stocks, commodities or any other market successfully. But you could be the world’s foremost expert on the commodities market and still not be able to translate that knowledge into monetary success.

Two emotions fear and greed can be lethal to your financial success. Developing an unemotional, systematic approach to your trading and investments is crucial for success. The following ideas will help you control your emotions and improve your trading results.

Develop a Trading System

Many people approach the market in a very unsystematic fashion. One day they are buying blue chip stocks that pay dividends; the next day they are playing tips from their nephews on biotechnology start-ups. Develop a system that suits your personal style, risk tolerance, knowledge level, and time available to devote to this activity. Decide what market you will trade and exactly how you will trade. Simply saying I will buy and sell stocks is not a trading system. Write down your rules. For example, for a stock investor, what criteria will stocks meet for your consideration? At what price will you buy? Will you short stocks? Where will you set your stop loss price? How much will you invest in any single position? How much will you diversify among industry sectors? Will you rotate in and out of sectors as they fall out of favor with the markets? Wherever possible, back test your rules and ensure your system has a reasonable expectation of profitability.

Have a Written Plan for Every Trade

Before you buy that stock or option spread or other investment, you must make some critical decisions. Write down your answers to the following questions: Why do I think this is a good idea? At what price will I admit my idea is not working and close the trade? If appropriate for this trade, at what price will I make some adjustments to the position? At what price will I take my profits? The answers to these questions and others constitute your trading plan. Be sure you have a plan before you establish the trade.

Follow Your Plan

This may be the hardest aspect of trading you must master. Once you have your plan, you must have the discipline to follow the plan unemotionally. Don’t allow yourself to rationalize how the stock is going to rebound or allow your ego to refuse to admit the mistake. When the stock price dips below your stop loss price, close the position.

Don’t hope. Don’t rationalize. Follow your plan.

Evaluate Your Results

Develop a routine of reviewing your trading results periodically. When I review my trades each month, I make an important distinction between my “losing trades” and my “bad trades”. Bad trades result when I break my own rules for entering the trade or lack the discipline to follow the plan. Losing trades are those where I followed all of my rules, but the trade just didn’t work out as planned. These losses are simply a “cost of doing business”. It is critical to treat your investing as a business, not a hobby. In any business, there are necessary expenses to keep the business open. Trading losses are an expected, necessary part of any investment activity. Developing a trading system and following the individual trade plans ensure that your profitable trades will outweigh your losses.

This Isn’t Gambling

A common misperception holds that investing is akin to gambling. In fact, when you closely analyze the actual trades of many investors, they are indeed gamblers. They are following tips and hunches, investing large amounts on expected turnarounds, anticipating mergers, betting on start-ups, and so on. But consider the business of gambling – not the gambler, but the casino. The casino establishes a game where the casino holds a statistical edge; depending on the game, that edge may be rather small, of the order of 1-2%. The casino owner knows that he may have a big winner today at one of the blackjack tables, but that doesn’t concern him because he knows he has an edge. When averaged over all of the different players and games, and over the long term, the casino will come out ahead.

When you work hard to develop the knowledge of the market you are trading, develop a trading system, have a written plan for every trade, follow your plan with great discipline, and learn from your mistakes, you have positioned yourself as the casino owner, not one of the customers.

Top Three Mistakes New Traders Must Avoid

1) Not having a defined trading strategy. To consistently make money in the markets, a trader must have an edge that can be repeatedly exploited. Many traders don’t understand what this really means. Instead, they hop around from one trade to the next relying solely on intuition. While a trader can have periods of success trading without a plan, in the long run it would be extremely difficult to maintain any level of success without a repeatable core strategy.

The most common mistake is there are many traders who have a perfectly acceptable strategy, but consistently find themselves straying from it in order to chase what is hot in the markets. It’s not enough to have a strategy — a trader must refrain from getting away from it when tempted by greed. There are thousands of trading strategies that will work consistently, but all of them will fail without the discipline to stick to them. Trading is more about discipline and consistency, and less about fancy trading systems. A trader will usually be successful so long as they have a method to cut their losses quickly and maximize their profits on winning trades.

2) Ignorance of time frame. This mistake can probably be rolled up into Mistake #1, but is important enough to mention on its own. Knowing your time frame goes beyond what time frame charts you look at for trading. The first thing a trader needs to know is what they are trying to accomplish with a trade. While making money is the obvious answer, I’m talking about determining what move a trader is trying to capture. Often, a trader focuses his entire attention on getting into a trade. He or she has little regard for how they will get out of the trade. This usually leads to wavering back and forth on when to exit. Traders need to know how long they will be in a trade and what they are trying to accomplish. Otherwise, the markets dictate how they will exit. Traders need to define what part of a trend they are trying to capture, then act accordingly. While the signals don’t have to be defined to the point of being mechanical, traders should have a clear and definite direction they are taking in a trade.

There are several different trading styles out there — from scalping a tick chart, to position trading off weekly charts. For instance, if you are trading to capture a several day trend, then your target and stop loss should complement that objective. I often see traders say they are trying to capture a multi-day move. They leave an open-ended target, then panic on an intraday pullback. While there is nothing wrong with leaving an open-ended target, traders need to be willing to suffer through a pullback if they are trying to let a trend run its course.

Too often, I see traders entering trades with no real ultimate target and no clear understanding of how to identify when they are wrong in the trade. Stop losses are intimately tied to targets, yet this is an area which confuses many traders. Many traders also mix up their time frames once they are in a trade. Basically, if you’re going to scalp, then scalp and scale or get out on strength. Don’t worry about missing a continuation move that falls out of your time frame. First of all, this wasn’t your planned trade. Second, as humans we tend to have a selective memory. We tend to discard the myriad of times when holding would have been unsuccessful. If you are a trend follower position trading, it makes more sense to trad without a target and keep a very loose trailing stop. Otherwise you will not allow the trend to unfold. Many traders don’t realize their objective, then set incompatible exit orders. While traders don’t need to lock themselves down to a specific time frame, every trade setup in their arsenal should attempt to capture a well defined movement.

3) Thinking about what is supposed to happen instead of focusing on what is happening. Recently, I’ve seen traders fighting the tape on the entire rally off the March lows. I’ve seen very smart individuals going to cash because they can’t see how this rally can be for real with the economic picture so bleak. Many traders are crying foul, saying the government is manipulating this or that, fudging employment data, economic reports, etc. I don’t know if any if that is true, and I don’t really care. I’m not a naïve person. I understand there is a certain amount of manipulation and unfair trading practices that exist. However, I also believe that this behaviour is prevalent in any industry/activity where large amounts of money is involved. Greed is one of the most powerful emotions we have as humans — probably rooted deeply in our survival instincts. There will always be corruption and manipulation in the financial markets. However, this should not stand in the way of any trader stepping in and making money. It’s okay to feel however you want, but in the markets only price pays. The old Jesse Livermore quote says it perfectly: “There is only one side to the stock market; not the bull side or the bear side, but the right side.”

Traders should learn to focus on what is occurring in the markets and try to remain objective. While there is nothing wrong with using your intuition and intelligence to uncover possible themes or trading scenarios, traders should also remain objective and let the markets either agree or disagree with their thesis. It makes no sense to throw up your hands and let the markets run you over because they disagree with your beliefs.

In summary, the cure for most trading mistakes is to have a plan for dealing with whatever the markets throw your way. Once you have a plan you will not react to the markets. Instead you will proactively trade a well thought out plan.

Source:Joey Fundora

Top Three Mistakes New Traders Must Avoid

1) Not Selling Fast When You Are Wrong.

What I can lose on a given trade is always more important to me than what I can make. Most new traders will make a purchase or initiate a short position, but when the trade turns against them, they immediately forget why they bought or shorted the stock. As a result, they will let “hope” take over as their new strategy. Hope is not a strategy! Take your medicine and accept defeat when you are on the wrong side of a trade. Great traders have tough skin and move on.

The solution for this problem is to use stops. I always use stops when I trade. The percentage you are willing to lose will be a direct by product of your own risk tolerance — but use them always. I use approximately a 2% stop on all my trades (sometimes less).

2) Using Multiple Approaches or Strategies. Many new traders think they have a strategy … until they don’t. They feel they are comfortable with an approach, but at the first sign of failure they stray. Thus, they become aimless and reckless. Before they know it they are trading rumours, chasing stocks, and ultimately blowing up their account (before they have any real success at all).

New traders will “over trade” or do what I call “revenge” trading right after a loser. Revenge doesn’t work in the market and the only person that benefits from over trading is your broker. I have one strategy I use. Is it the only strategy that works? Definitely not. As a matter of fact almost every trader I know uses their own approach. Some strategies are proprietary systems. Some are plain vanilla strategies that are very basic in nature. The point is have a plan and an approach! So, learn one thing and be the best at it. There is way too much “noise” out there in the new and old media. Everyone claims to be a bull or bear market genius. Put the media on mute so you can follow and perfect your plan.

Being a voracious learner is absolutely key. Be a sponge and learn as much as you can. If you are a day trader, use the websites and read the books that will help you become the best. There are some phenomenal trading blogs out there. Most information is a click away.

3) Trading Too Large. I ran a sizable hedge fund and thankfully always beat the indices in good or bad markets. Much of my initiation and experience was baptism by fire. But if a novice trader asked me the one thing he or she should do to get a feel for the market, I would tell them to paper trade or use very small dollar amounts. There is absolutely no substitute for “screen hours.” Tiger Woods hits five hundred to a thousand balls a day, and he is already the best in the world. If trading is truly your passion, then be in front of your trading screen all day. If I miss twenty minutes of trading because I am out of the office, I genuinely feel like I missed the whole day — my rhythm is gone and my edge becomes diminished. You may be able to get away with less screen time if you are a longer term investor. But if your passion is perfecting the short term trading game, you won’t stand a chance. Good luck out there and don’t listen to the pundits.

Source: Joey Fundora

Making Trading Journals Work for You

I’d like to cover some of the features of trading journals that I have found helpful in my work with new and experienced professional traders. My goal as a trading psychologist is to do all that I can to accelerate traders’ learning curves. Sometimes this means helping traders with emotional problems, but just as often such problems are the result of trading difficulties and not their cause. A journal, properly constructed, is a powerful tool for learning—and relearning—markets and cultivating exemplary trading behaviours. Here are some of the principals that have guided my journal-based work with traders:

1. Make journals a part of the daily routine – Even if you don’t trade on a particular day, it is valuable to review the day’s setups and behaviour at key price levels. Reviewing patterns on different time frames can also help traders internalize the context of the markets they are trading, as well as the interrelationships among those markets. The French scientist Louis Pasteur observed that, in matters of observation, “chance only favours prepared minds”. Replaying market days, reviewing your own performance, and identifying missed opportunities prepares you for future performance, as your increasing familiarity with trading patterns sensitizes you to them in real time.

2. Incorporate specifics in your journals – If I had to identify the single most common shortcoming among trading journals, it would be their absence of detail. Entries such as, “I lost my discipline; I have to be more patient,” might be nice as post-it reminders, but are inadequate as journal entries. Journals need to clearly state what happened, your assessment of why it happened, and the specific steps you intend to take to deal with the situation in the future. A good rule is that anyone reading your journal should be able to identify and follow the exact same steps that you intend to take in the future. Your journal should be a planning document, not a statement of intentions.

3. Wherever possible, review your journal entries with a valued colleague or mentor – When I established a training program for new traders, one of my first steps was to insist upon daily review of trading journals. This required me to create a trusting and constructive environment, so that traders would be honest in their entries. Once that openness developed, the daily reviews became proactive planning sessions (usually shortly before the start of the trading day) that addressed issues before they could damage the profit/loss statement. Even more important, the daily review created expectations of accountability, as traders knew that my inevitable question would be, “How did you do with your goals for the day?”

4. Use journals to review positive trading performance, as well as problems – The number two shortcoming among journals is their focus on problems to the exclusion of solutions. If journals become a mere recounting of one’s flaws and inadequacies, traders will inevitably lose interest in them. Traders can learn as much from what they do right as from their errors. My favourite instruction to new traders is to highlight in their journals one thing that they did right the previous day that they want to replicate today and one thing that they could improve upon in today’s trading. This forces traders to stay in touch with their strengths, as well as their failings.

5. Each journal entry should include material about the markets and material about the trader – It is not unusual for traders to emphasize one at the expense of the other. The core concept I stress with traders is that of pattern recognition. Traders display patterns in their behaviours: some of these are positive; others interfere with profitability. Markets enact their patterns as well; it is the trader who can see these as they emerge and act quickly that has the best chance of long-term success. Including material about trading patterns and traders’ patterns makes the journal a learning tool about oneself and the markets.

The best trading journals I have observed have been ones that are creative and rigorous. Here are the two most important steps I believe you could take to turbo charge your journal:

1. Make it a multimedia project – Writing a journal in diary form is good, incorporating annotated charts is better, but including video is best of all. Programs such as e-Signal allow you to take screen captures of the market at any time of the trading day and also allow you to replay market days and review their unfolding. Better yet are desktop video programs such as Camtasia that create highly compressed video files of your desktop activity. This allows you to capture the day’s trade in its entirety, which you can then annotate by adding a voice track. Ninety percent of pattern recognition is repetition: seeing enough variants that you become sensitive to essential and inessential features. While static charts are better than nothing, they do not capture the unfolding of patterns: the very thing that traders need to be able to recognize and act upon. Videos provide the opportunity to see patterns over and over again, accelerating the recognition process. Multimedia journals also actively engage the trader and allow traders to process markets via multiple modalities (images, sound, text, etc.). Educational research tells us that learning is most likely to occur when learners are actively involved in the acquisition of knowledge and skills. An engaging, multimodal journal is apt to be a better learning vehicle than a dry diary.

2. Incorporate metrics – I could write a book on this topic. It is absolutely amazing how much more traders can get from their journals if they include basic statistics about their performance. Trading tendencies that escape normal notice suddenly stand out when summarized statistically. Areas for work and areas of improvement also stand out. With statistics, we can not only say that a trader made improvement, but can actually measure that improvement and track it over time. Such statistics capture improvements that will eventually show up in the profit/loss statement, but which may not be immediately evident.

Here are my favourite trading metrics for active traders:

* Number of winning, losing, and scratched trades;

* The average size of winning and losing trades;

* The average holding time per trade, and the average holding time broken down by winning, losing, and scratched trades;

* The number of winning, losing, and scratched trades broken down by long and short positions;

* The number of winning, losing, and scratched trades broken down by time of day;

* The average holding time per trade for long and short positions and broken down by time of day;

* The number of winning, losing, and scratched trades for days categorized as uptrending, downtrending, and neutral;

* Daily profit/loss, also broken down for days categorized as uptrending, downtrending, and neutral;

* The sequences of winning and losing trades during a day and from day to day;

* The largest winning and losing trades during a day and during a week;

* The largest winning and losing days during a week and during a month.

Less frequent traders can keep these statistics manually. Very active traders will benefit from programs that automatically capture trade data and summarize performance, such as Trader DNA (www.traderdna.com). The data provide very helpful benchmarks that allow traders to diagnose problems and track improvement.

Here are a few of the areas for improvement that commonly emerge from statistical analyses of performance:

* Holding onto losing trades as long or longer than winners;

* Trading with a persistent long or short bias that is not supported by market trends;

* Significantly different profitability during morning vs. afternoon trading hours;

* The tendency to have strings of winning and losing trades;

* Significantly different profitability during different market conditions, such as trending markets or volatile ones;

* The tendency to give back the results of many profitable trades in a few large losing ones.

When you combine rigorous metrics with a multimedia journal, the result is the kind of ongoing quality improvement process that typifies the finest business organizations. The best trading journals are technologies for learning and self-improvement. This takes time, effort, and creativity, but the results are worth the investment.

Compare CFD Brokers And CFD Providers

When it comes to CFD trading, a CFD broker or provider is a person who works through online, uses electronics CFD platforms that makes CFD trading mobile and will help you to develop your trading routine within a shorter period of time. It is wise to compare CFD providers before joining.

Unless you have any enquiry or need assistance with a particular order there is no need to directly communicate with the broker. A full service CFD broker would provide you more information than the cut-price online CFD brokers. Now, here we will see how to select a CFD broker or trader. One way to learn about CFD brokers is by asking an experienced trader if you know someone or met while doing a CFD trading tutorial course. Regardless of which CFD broker you choose to trade with, consider the following factors to make sure that they are well established in their profession they are offering you the features that you are looking for. A good way to have some idea about the CFD providers is by trying out a demo account with them to test their trading platform.

Online CFD Brokers: Things you Should Compare

Margin Requirement

Usually CFD brokers come up with margin requirement that remains within 5-20%. Many providers keep it at 10%, thus offers around 10 to 1 leverage. However, depending on the turnover of a particular CFD, some CFDs require a margin around 20-70%.

Broker’s Commission

The commission depends on the CFD provider. Usually it remains within 0.1 to 0.2% of the size of your trade each way with a minimum commission of around $10-25. However, these commissions are negotiable especially if you are a regular CFD trader. So always ask the broker about it.

Information regarding CFDs

When it comes to choosing a broker, it is important that you take necessary notes regarding their CFD offerings. In general, it is important that you have access to a large number of CFDs when you are using trading systems that are designed to be traded on for instance, the top 200 or 300 CFDs, than if they are programmed to execute trade on the top 30 or 100 only.

If you are trading a system that is designed for a certain amount of CFDs to generate profits then you need to make sure that the number of CFDs that are available is sufficient, or else you may have to redesign your system. You can backtest your system with the current list of CFDs that are provided by the broker that you are interested to trade with. This will help you to develop a system that is more applicable in real life scenario.

Types of CFD Orders

There are many online CFD brokers available who offers the opportunity to the traders to place their orders after the market time is over. So, if are working at office during the day time and willing to place orders during the evening or at night then this is something you need to look for in the offerings of a CFD provider.

However, some brokers might require you to place the orders while the market is open. This depends on your trading strategy and system.

Avoiding CFD Risks, The Path To Trading Success

The main CFD risks is the impact of leverage when trading CFDs. With leverage available up to 20:1 you can make a lot of money very quickly and also lose a lot of money very quickly.

Stops Can Control Your Risk

Stops work very well to limit your CFD risk. Place your stop at a price that will control the loss per contract to an acceptable level. This is an effective way to manage your risk.

A stop loss will exit you from a trade with a predetermined loss on the trade. Without a stop the loss could be much larger. If you entered a trade at $12.50 and placed your stop at $12.10 your loss on one contract is set at 40 cents.

Too Big, You Loose

By placing your stop at a predetermined level the amount you lose will now depend on your position size. The more contracts that you hold the more money you will lose if the trade goes wrong. This is the second CFD risk that you can manage.

with 30 cents at risk the number of contracts will determine your gain or loss. 100 contracts would give a loss of $30, 200 contracts would lose $60 and 1000 contracts would lose $300. Bigger positions, say 10,000 contracts would lose $3,000. Correct position sizing is an important aspect of controlling CFD risk.

A Gap Away From Disaster

A stop does not cover you against all CFD risks. It is possible for a share to gap over the stop resulting in a larger than expected loss. Your stop may have been placed 40 cents form your entry, but the share never traded at that price, instead jumping over your order to create a bigger loss of 60 cents. There are a few techniques you can use to minimise the impact of gaps.

Control your position size

Most Destructive CFD Risk

The biggest risk when trading CFDs is however not related to stops or position sizing, it is instead you. Controlling your own emotions is vitally important to prevent placing a position that is too big or to move stops to prevent you losing money. If you follow either of these strategies you will inevitably lose.

Managing your risk is the key to your success and profiting from CFDs.

Aspects of CFD trading

It has been mentioned that CFD trading is very similar to share trading, and in most respects the two are almost the same. CFDs, however, have distinct features that differentiate them and make them attractive to traders and investors alike.

These features include:

Leverage

In the financial market, leverage means the use of borrowed money to put into investment products such as property, shares, property trusts or managed funds. A common example of using leverage is people borrowing money (from a bank or financial institution) to invest in a residential or investment property. This results in a mortgage for a home loan or an investment loan. People may also borrow money to buy shares. This is commonly known as taking a margin loan to invest in a share portfolio.

Trading CFDs is similar to taking a margin loan because when you trade a CFD you are paying only a small portion or percentage of the total value upfront in the form of a margin payment. The full amount is loaned to you by the CFD provider. It is this full amount upon which your financing charges will be calculated. Margin trading means that you only need a small percentage of your trading capital to open up larger or more positions than you could normally open if you were trading shares.

Some CFDs require as little at 5% margin, some 10% and others 20% or more, depending on the CFD. For many investors and traders, being able to trade on margin (using leverage) is the biggest attraction of CFDs, as it increases the opportunity to profit while using less capital.

Nevertheless, the ability to trade on margin can be a double-edged sword, in that it both magnifies potential profit and losses. When used wisely and appropriately, however, trading on margin can be a big boost to profitability and capital building.

Flexibility

Two of the more attractive elements of CFDs are cheap commission and low margins. But that’s not the whole picture. You shouldn’t forget about the tremendous flexibility they offer. Flexibility is what allows you to keep making money no matter what market conditions are like.

One of the key features of share CFDs is the ability to trade on both the long side and the short side of the market.

Short selling occurs when your opening trade is a sell order. If the price of the share falls and you close the position (with a buy order), your profit is the difference between the two. As you can see, this enables you to benefit directly from a falling share price.

While not always the case, traders generally will not want to have their trading portfolio either entirely long or entirely short. If you structure your trading portfolio this way, the day-to-day oscillations of the market can have a marked impact on the value of your portfolio. While it is easy to talk about portfolio volatility, it becomes more of an issue when you have real capital invested.

You’ll probably find there are long and short opportunities regardless of the prevailing market conditions.

Naturally, in a bear market there will be more opportunities on the short side than on the long side, but it’s best not to focus exclusively in that direction. Even though the market has been consistently bearish for some time, if you were too heavily short at the wrong time you could easily have suffered some significant draw downs due to bear market rallies that have occurred.

To illustrate this it’s worth considering some statistics. In 2008, the ASX/200 index fell by 41.29% – which we can comfortably say is a very strong bear market. However, over this period the index rose on nearly 45% of trading days. What this shows is that being heavily short would probably have been profitable, but the volatility you would have experienced would have been quite high over the course of the year.

This is where a difference can be seen between the short-term trader and the investor:

a. For the investor, the idea of weathering the ups and downs of being in the market is all part and parcel of the business.

b. For the trader, the objective is to try and capture smaller moves of the market and then exit. Timing remains an all-important component of survival for traders.

The conclusion you might draw (and probably should) is that being directionally wrong for even a short time can be expensive.

CFDs can be traded long or short

When you buy a CFD (go long), you’re expecting its price to go up so that you can sell it later at a higher price, for a profit.

When you sell a CFD (go short), you’re expecting its price to go down so that you can buy it back later at a lower price, for a profit.

Being able to trade long or short is one of the most attractive features of CFDs. It means that you can trade long with the aim of making money on a rising market, or trade short looking to make money when the market is falling.

Short selling physical shares is a complex and more costly procedure compared to short selling CFDs. NB Not all instruments can be traded short.

Dividends and corporate actions

For many long-term investors, dividends remain one of the determining factors in whether they invest in a particular share or not. Therefore, dividends can be considered important when deciding which stock to buy.

When you trade share CFDs on dividend-paying shares you will automatically be paid the dividend when you have a long position. The dividend payment is usually reflected on your trading account on the day of its announcement. On the other hand, if you have a short CFD position during the announcement of the dividend, the amount of the dividend will be deducted from your trading account. Other corporate actions such as bonus issues and share splitting are also automatically reflected on your CFD trading account as soon as they’re implemented.

Reporting season

The reporting season refers to the time of year when publicly listed companies update the market about their half yearly and yearly performance. It is also usually the time when companies announce whether their profit forecasts are on target.

Depending on a company’s performance and projected profit, the reporting season can result in volatility within the market. For example, if a company issues a forecast that its earnings will be lower in the next half year, the share price might fall the next day as investors may be disappointed with this result. On the other hand, if a company doubles its income and profit expectation for the coming year, the share price may jump higher as investors and traders take advantage of the good news.

As CFDs mirror the price of the underlying share, movement in share prices during the reporting season will also be reflected in CFD prices. This means that as a trader or investor, you have to be aware of the possible impact of the reporting season on your CFD positions. NB Reporting seasons vary from market to market.

Product trading times

The advent of the internet and online trading means that traders and investors now have access to international markets almost 24 hours a day and not only during market hours in Australia.

Another aspect of CFD trading involves the expiry date or length of holding time. Unlike other derivatives that have expiry dates and become worthless upon expiration, CFDs don’t have an expiry date. This means you can hold CFDs for as long or as short a period as you like.

Short-term traders may trade CFDs for a few days, while medium- to long-term investors and traders may trade them over a few weeks or months.

Lower brokerage costs

Compared to the brokerage fees payable when you trade with a regular stock, commission charges when trading CFDs are relatively low.

Instead Of Stocks, Trade A CFD

The difference between where a trade is entered and exited is the contract for difference (CFD). A CFD is a tradable instrument that mirrors the movements of the asset underlying it. It allows for profits or losses to be realized when the underlying asset moves in relation to the position taken, but the actual underlying asset is never owned. Essentially, it is a contract between the client and the broker. There are several major advantages to trading CFDs, and these have increased the popularity of the instruments over the last several years.

How a CFD Works

If a stock has an ask price of $25.26 and 100 shares are bought at this price, the cost of the transaction is $2,526 cash outlay from the trader. With a CFD broker, often only 10% margin is required so this trade can be entered for a cash outlay of only $252.6.

It should be noted that when a CFD trade is entered, the position will show a loss equal to the size of the spread. So if the spread is five cents with the CFD broker, the stock will need to appreciate five cents in order for the position to be at a breakeven price. If you owned the stock outright, you would be seeing a five cent gain, yet you would have paid a commission and have a larger capital outlay. Herein lies the trade off.

If the underlying stock were to continue to appreciate and the stock reached a bid price of $25.76, the owned stock can be sold for a $50 gain or $50/$1263=3.95% profit.

At the point the underlying stock is at $25.76 the CFD bid price may only be $25.74. Since the trader must exit the CFD trade at the bid price, and the spread in the CFD is likely larger than it is in the actual stock market, a few cents in profit are likely to be given up.

Therefore, the CFD gain is an estimated $48 or $48/$126.30=38% return on investment.

The CFD may also require the trader to buy at a higher initial price, $25.28 for example. Even so, the $46 – $48 is a real profit from the CFD, where as the $50 profit from owning the stock does not account for commissions or other fees. In this case, it is likely the CFD put more money in the trader’s pocket.

The Advantages:

Higher Leverage

CFDs provide much higher leverage than traditional trading. Standard leverage in the CFD market begins as low as a 5% margin requirement. Depending on the underlying asset (shares for example), margin requirements may go up to 50%. Lower margin requirements mean less capital outlay for the trader/investor, and greater potential returns. However, increased leverage can also magnify losses. (For more, see The Leverage Cliff: Watch Your Step.)

Global Market Access from One Platform

Most CFD brokers offer products in all the world’s major markets. This means traders can easily trade any market while that market is open from their broker’s platform.

No Shorting Rules or Borrowing Stock

Certain markets have rules that prohibit shorting at certain times, require the trader to borrow the instrument before shorting or have different margin requirements for shorting as opposed to being long. The CFD market generally does not have short selling rules. An instrument can be shorted at any time, and since there is no ownership of the actual underlying asset, there is no borrowing or shorting costs.

Professional Execution With No Fees

CFD brokers offer many of the same order types as traditional brokers. These include stops, limits and contingent orders such as “One Cancels the Other” and “If Done.” Some brokers even offer guaranteed stops. Brokers that guarantee stops either charge a fee for this service or attain revenue in some other way.

There are very few, if any, fees for trading a CFD. Many brokers do not charge commissions or fees of any kind to enter or exit a trade. Rather, the broker makes money by making the trader pay the spread – to buy, a trader must pay the ask price, and to sell/short, the trader must take the bid price. Depending on the volatility of the underlying asset, this spread may be small or large although it is almost always a fixed spread.

No Day Trading Requirements

Certain markets require minimum amounts of capital in order to day trade, or place limits on the amount of day trades that can be made within certain accounts. The CFD market is not bound by these restrictions, and traders can day trade if they wish. Accounts can often be opened for as little as $1,000, although $2,000 and $5,000 are also common minimum deposits requirements.

Variety of Trading Options

There are stock, index and commodity CFDs; even sector CFDs have emerged. Thus not only stock traders benefit; traders of many different financial vehicles can look to the CFD as an alternative.

The Disadvantages

While CFDs appear attractive, they also present some potential pitfalls. For one, having to pay the spread on entries and exits eliminates the potential to profit from small moves. The spread will also decrease winning trades by a small amount (over the actual stock) and will increase losses by a small amount (over the actual stock). So while stocks expose the trader to fees, more regulation, commissions and higher capital requirements, the CFD market has its own way of trimming traders’ profits by way of larger spreads.

The Bottom Line

There are many advantages to CFD trading including lower margin requirements, easy access to global markets, no shorting or day trading rules and little or no fees. However, high leverage magnifies losses when they occur, and having to continually pay a spread to enter and exit positions can be costly when large price movements do not occur. CFDs provide an excellent alternative for certain types of trades or traders, such as short and long-term investors, but each individual must weigh the costs and benefits and proceed according to what works best within their trading plan.

Source:Cory Mitchell

High Probability Trading Strategies Using CFDs

High probability trading strategies for CFDs are highly desirable. These strategies are easier to trade because they provide more winning trades.

The impact of leverage is not as great as these strategies are less likely to have losing streaks so the drawdown is reduced.

High probability trading strategies are not necessarily the right direction to focus on with your research.

Trading Is Not About Being Right

The success of a trading strategy is dependent on two factors, how often the strategy wins and the risk reward of the strategy. It is the combination of these two factors that determines the results, not one of them in isolation.

Consider the following trading strategy that is profitable 95% of the time. The strategy wins $100 on each profitable trade, so from 100 trades the strategy makes $9,500 trades on average. But what happens on the other 5% of the trades.

If the average loss is $2,500 then the strategy loses $12,500 based on 5% of the 100 trades. Even though this strategy is right very often it still loses money. It is not one or the other measure in isolation, it is the combination of win% and the risk reward.

You Will Still Have Losses

The strategy that is often used to get high probability trading strategies is to use wide stop losses and small profit targets. One hot selling product is FAP Turbo, the forex trading robot, that uses this idea to achieve a hit rate of 95%.

All goes well until you experience a series of large losses. The losses can be reduced by tightening the stop loss, but this is very likely to reduce the number of times the strategy wins.

Balancing The Tradeoff

Finding an optimal relationship between the level of the stop loss and the success rate of the strategy requires testing the idea to determine the trade off between risk/reward and success rate.

Testing chart pattern breakouts I found the best trades breakout and keep going. With this entry idea a tight stop can be used to gain better results by giving a higher risk reward. Testing profit targets also gave interesting results improving the win%, but reducing the profitability overall.

Make Money First, Be Right Later

A trend following strategy is right around 30% of the time, but when it does win it wins big, with a risk reward of 3 or more. This is a profitable trading strategy.

A short term scalping strategy that wins 70% of the time with a risk reward of 1:1 is also profitable.

In the pursuit of being right and chasing high probability trading strategies, remember to ensure that trading is about making money, not being right.

Source: Jeff Cartridge

CFD Trading: Going Long – Making a Profit

In this CFD trading example we will be going long and making a profit. Going long means you buy a CFD to open your position with the view of making a profit from the increase in price of the underlying security. You realise the profit by selling at a higher price than the price at which you bought your CFD.

Let’s commence our profitable Share CFD trade example; note that these are all automatically calculated by your CFD provider, the example is used to illustrate the mechanics of your trading accounts’ inner workings.

Let’s say you’ve got $10,000 in your trading account with no current open positions. You spot a trading opportunity for a CFD for XYD Widgets Company and you decide to enter in the trade.

The XYD CFD is quoted at 30.00/30.02 (bid price/ask price). You decide to buy 2,000 XYD Share CFDs at the offer price of $30.00. At this point your broker may have fees deducted from the trade: let’s say the broker’s commission is at 0.1% of the trade so: 2,000 Share CFDs x $30 x 0.1% = $60 commission.

Your trading account is currently at $10,000 – $60 = $9,940. Your margin requirement for holding the CFD position currently stands at: 2,000 CFDs x $30 x 10% (say XYD has a 10% margin requirement by your CFD broker) = $6,000. Therefore your total margin requirement for holding XYD CFD is $6,000. And therefore your total free equity in your account is: $9,940 – $6,000 = $3,940. (Free Equity which is available for you to trade with minus margin requirements).

You hold the position overnight and the next day you are charged with a financing fee: (Number of CFDs held * Closing price * Financing Rate / 365). Your account finished the day at $9,940. The financing charge is: (2,000 x $30) x 5% / 365 = $8.22.

Before we complete the calculation – say the share price gapped at opening to $31.00/01 you would have earned some profit: ($31-$30) x 2,000 = $2,000. Therefore your CFD Trading account now stands at $9,940 – $8.22 + $2,000 = $11,931. At this point you can also calculate your margin requirements and your total free equity.

Later that afternoon you decide to exit your CFD trade and you close off you position by selling your XYD Share CFDs at the bid price of $31.00.

We will now calculate your total equity. When you close a position you have a 0.1% commission to pay: 2,000 CFDs x $31.00 CFD price x 0.1% commission = $62.

After you sell your position you are no longer bound by any margin requirements. Once you have completed your trade, your CFD trading account will now have: $11,931 – $62 = $11,869. Total profit from the single long Share CFD trade after all the fees and charges is $11,869 – $10,000 = $1,869.

Introduction to Day Trading CFDs

So if you are planning to go for CFD day trading rather than trading through long term CFD positions then this article will provide you the introduction that might help you to determine whether CFD day trading is going to be suitable for you or not. You will find out a few of the benefits and also the downside of focusing on intraday trading of CFDs.

Introducing the benefits of Day Trading CFDs

Now there are several benefits of Day trading CFDs. This includes:

1.It doesn’t involve any overnight risk. This means you don’t expose yourself to the risk of a stock or share and hence the CFD gapping up or down overnight. If the gapping happens against you, then there is a scope for you to exit at a position at a higher price than your intended exit.

2.There is no interest cost. If you trade the CFD within the day and don’t rollover your trade to the next day, you don’t incur any interest costs.

3.You can get short term results from CFD day trading. Since you are in the position for a shorter period of time, you can easily rely on short term cash flow if you want to.

Downside to Day Trading CFDs

However, CFD day trading does have some difficulties as well. These are:

1.You will need to trade shorter time frames. Means you need to monitor the screen at a regular basis. The process is usually more time consuming.

2.It is important to have a very good idea about your system since you will have to make quick decisions about your trades.

3.Typically will catch smaller moves. So in order to make larger amount of cash, it is necessary to go for bigger float or use more leverage.

Now after going through all these factors, if you think day trading will suit you, then consider attending a day trading course with an experienced trader who uses price action and indicators to establish a strong trading system. CFD day trading might look more exciting if you enjoy looking at the movement of the stock prices and if you can effort the extra time trading. Day trading is simply another time frame.

How Much Margin Do I Need in My CFD Trading Account?

When trading CFDs, your CFD broker requires you to have a certain amount of cash equity in your CFD trading account. When you open a CFD position, your trading account must have enough cash to fund their margin requirements. Your CFD provider’s margin requirements are typically listed on their website or in their Product Disclosure Statement.

The mathematical equation for calculating your margin requirements is: Margin Percentage x (Contract Quantity x CFD Price) = Margin Requirement. For example, your margin requirements when opening a long position for Telstra (TLS) for 1,000 Share CFDs at $3 with a margin of 10% would be: 10% x (1,000 x $3) = $300. $300 would be your margin required.

Your margin requirement for your CFD position is a dynamic number. As the price of the underlying security fluctuates, your margin will also change.