Tag Archives: Trading

General Business

CFD Trading In Today’s Market

CFD trading gives you the flexibility that you require to trade in current markets. The important word here is flexibility. That is what gives an investor control. In fact, control, by definition means having a plan ready for every scenario that may turn up your way. By using a mix of leverage and lower transaction costs, CFDs allow you to maximise your returns. Features like no minimum contract size and no expiry date ensure that no unnecessary entry or exit barriers are created. It as free as a market can get. It is these features that make CFD trading so lucrative. Let’s delve into the details to find out more.

Characteristic Features of Cfd Trading

Leverage: In business as in physics, leverage is the ability to do more and more with less and less. Great personalities have claimed that they could dislodge the earth, if they found a lever big enough to do so.

While trading contracts for difference, one needs to understand it as the amplifiers of profit and/or loss.

CFD Trading allows you to take the best advantage of a market movement by using leverage. You only have to put 5 percent of the money down on most trades. The balance 95 percent will be financed by the trading company at LIBOR+/- a few basic points. Hence, it is possible to gain 50 percent or more in a single day when the market may have moved less than 3 percent!

No Contract Size: CFD trading is pretty much like trading financial derivatives such as the futures market. The vital difference is the fact that there is no minimum size of a contract. You could trade a CFD for one single stock if required. This gives you considerable flexibility as your investment need not be in multiples of lot sizes.

Example: For a futures contract, you may have to trade a lot size of 100 shares. Hence, the options for you are in multiples of 100. Increasing by

Multiples of 100 increase your margin requirements and risk considerably. CFD trading, on the other hand, will allow you to trade one share if required. You, therefore, are in complete control of your investment decisions.

No Expiry Date: Another vital difference between the CFD trading and futures market is that there is no expiry date. In a futures contract, when the expiry date is near, the number of buyers for a contract reduces significantly. Liquidity crunch exerts a downward pressure as the contract comes near its expiry dates. Contracts for difference are free of any such artificial price declines.

Lower Transaction Costs: CFD trading may cost you more in terms of brokerage in some parts of the world. However, the whole idea was invented to take advantage of favourable taxation treatment towards gain from stock markets. CFD trading has the potential to decrease your tax bill and increase what you take home.

General Forex

Trading System Position Sizing

Position sizing is determining HOW MANY contracts to trade when a trading system gets a signal. It is one of the most powerful and least understood concepts with many traders. Its purpose is to manage risk, enhance returns and improve robustness through market normalization. Position sizing can end up being more significant than where a trader buys or sells! Most trading systems and testing platforms either ignore position sizing, or use it illogically.

A big problem with many trading systems is that they risk too much of a traders equity on any given trade. Most professionals agree that traders should never risk more than 1% to 3% of their equity on any given trade. This also applies to the risk for each sector. For example, if a trader is risking 2% a trade in highly correlated markets like 2yr bonds, 5yr bonds, 10yr bonds and 30yr bonds, this is essentially like risking 8% in the same trade. Overtrading this way can produce incredible looking results with returns of 100% or more, but this is usually just a case of using too much leverage and taking too large a percentage risk on each trade (or sector) and or “cherry picking” the best starting date (like right before a series of winning trades).

When running a “Worse Case Analysis” at those high-risk levels, it becomes clear that the risk of ruin climbs dangerously high. A series of losing trades or starting on the wrong day could cause an investor to lose it all (or have an enormous drawdown).

The bottom line is that when putting on a trade, traders should know what percentage of their equity they will lose if they are wrong. This should only be a small portion of their available trading capital. This also means they need to know their risk when entering a trade. Some trading systems like moving average systems do not know how much risk they are taking. This is because the trading system does not know how far the market needs to move to trigger an exit. We think it is dangerous to trade this way and do not recommend it.

Another large problem is the lack of market normalization (such as a single contract based result). For example, we do not think it is logical to trade one contract of natural gas with an average daily volatility of around $2,000 for every one Eurodollar contract with an average daily volatility of around $150. Doing this would mean that natural gas is a more significant market than the Eurodollar. If Eurodollars trend, we want to give them just as much weight as natural gas (or any other market). In the previous example, traders could just simply remove the Eurodollar from the equation and get nearly the same performance. In essence, the results are unintentionally biased (curve fit) to natural gas. An average $150 winning trade in the Eurodollar is not going to offset an average $2000 losing trade in natural gas!

We recommend trading a basket of commodities for diversification, however, if traders do not normalize the data and most of the profits and losses arise from a few of the markets in the portfolio then that is not diversification. The problem is that going forward; traders are going to be dependent on those few markets to perform. It is far better knowing that any market has the potential to perform at an equal level rather than being dependent on markets in that portfolio.

It is likely that most trading systems ignore position sizing, or use it illogically because the design of most software packages is to work with a single contract based test. Of the numerous back testing products available for sale, we are only aware of two software packages that can properly do position sizing and money management testing. There are many products that claim to do it, but we have found that almost all these products do not do position sizing & money management correctly (there are many reasons for this, contact us for details). We use Bob Spears state-of-the-art testing software Mechanica (which sells for $25,000 a copy) for most position sizing based research and testing.

Other problems include vendors that only report the smaller drawdown numbers like “closed trade” drawdowns or “average annual” drawdowns. There are also problems with position sizing concepts such as “Optimal F” or “Fixed Ratio”. We feel both of these are just a dangerous form of hindsight biased curve fitting.

Another common fallacy says that traders should find their “best” single contract based trading system FIRST and THEN apply position sizing to it. This is not the correct approach; position sizing can change the risk-to-reward profiles of a single contract based trading system. A trading system that looked terrific, with a smooth equity curve on one contract basis, can look far less attractive when all markets are equally weighted for robustness.

For all the reason cited above, we develop trading systems with proper position sizing logic. We believe this raises the robustness and significance of the testing results. This also helps avoid the inadvertent optimizing that can occur with other types of position sizing / money management based testing software.

General Forex

CFD Trading: Going Short On Shares Can Help Earn Big

CFDs are trading instruments that give you leveraged trading power and greater flexibility than any other financial instrument. These are the fastest growing financial products and enable people to make more money than other investments. But, CFD trading can be extremely risky if you are not aware of the current market trend. The market is extremely volatile and changes every now and then. It can rise or fall within seconds. In such a scenario, going short on shares can help you earn big money.

Basically, a CFD means contract for difference, which is an agreement to exchange the difference in the value of a financial product between the opening and closing of the contract. CFD Trading can be highly effective in making use of your investment capital, but a little carelessness can land you in a big trouble.

When you buy a share or open a contract at a certain value and close it at some other value, you earn the difference of amount between its closing and opening value. If the closing amount is higher than the opening amount, you make a profit and if it is vice versa, you are at loss. To minimize your loss, going short on shares or buying fewer shares can help, because chances of loss increase with an increase in the number of shares. To play safe and make profit, buying fewer shares is preferable.

Although you can go long or short on shares according to your wish and understanding of the market, make sure that you have complete knowledge about CFD Trading. You can also apply online for trading CFDs. PureDeal offers you a full range of tools and charting packages that help you stay update and get the latest news about the market condition, so that you can effectively deal in buying and selling of CFDs.

PureDeal is a browser-based platform used for trading CFDs. The trading software is extremely easy to use and has a customized interface that offers quick one-click dealing. Even if you are new to CFD trading, you will not find it difficult to trade through this platform.

Charting CFDs can be very helpful in keeping a track of your orders and analyzing the net loss or profit in each order. It gives you an idea about how to effectively deal with CFDs, so that you are not at loss in your next transaction.

Many software are available, but choosing the right one can be a problem. Make sure that your trading software provides a personalized interface, so that you can easily use it even if you are a beginner. Try to avoid making even the smallest mistake, as dealing with financial instruments is extremely risky. Make sure that you have full understanding of the market, CFD dealing, and the software that you are using for CFD Trading. PureDeal offers you quick assistance and helps in choosing the right platform to enable profitable trading.

CFD Trading carries a high risk for your capital. Invest only that much you can afford to lose. Choosing the right CFD Software and going short on shares can help you earn more profit.

General Business

Stock Trading Newsletter: Your Best Ally in Making Money

If you are thinking of investing in stock trading, knowledge is key to its success. To get that, you need to study the principles of stock trading. It would be best if you enroll to some day trading courses online to get you started. Knowing the basics will help you fully understand the whole stock market trading business. Stock traders will move heaven and earth just to get the right information on the trends in the stock market. This is the reason why a stock trading newsletter is one of the greatest tools in stock trading. Getting reports and analysis on certain companies from people who have been doing this thing for so many years is important.

When you are still learning the ropes in stock trading, listening to the hunches and recommendation of veteran stock traders is a way to understand the business better. Signing up to receive a stock trading newsletter will give any beginner or veteran a daily dose of stock market info to help in deciding what stock to watch out for. Research is a trader’s ultimate weapon in making money in stock trading. Getting the right information from the right people at the right moment makes a whole difference on your success. It is quite easier today because of the Internet and all the communication gadgets we have now.

People can easily swap information everyday. It does not matter what country they are in. You can easily read the latest stock trading newsletter on your mobile phone anytime of the day. This is the beauty of the technology we have now, everything is laid out conveniently for everyone to use with just a few clicks in the computer. Just imagine the hardships traders in the past have to go through just to get the right information. Stock trading beginners can even go through their online day trading courses at their preferred time and day. Every single thing that will help a budding trader be successful at what they do is available at their fingertips.

It is never too late to try your hand in investing on stock markets may it be online or otherwise. You can start with a small amount. Do not be discouraged if you lose some because eventually through research and practice, you will get the right tempo on whether to invest or not. Day trading would be the best way to start. Use all the things you learned from the day trading courses you took and set up some goals that you want to achieve. Your success will depend highly on the kind of your goals you have. There are traders that like to invest for some quick cash and there are those who are investing to set up their future.

A stock trader should never forget that the stock market goes up and down for several reasons. It would be best not to be so emotional about your dealings. If you get too emotionally involved with it, chances are your life will also be as volatile.

Shane is a financial advisor, stock broker, and professional consultant. He enjoys reporting on the latest stock market happenings and offering advice to both fledgling investors and experienced day traders.

General Forex

CFD Trading Techniques

CFD trading stands for “contracts for difference”. As the name suggests, this type of trading allows an investor to participate in the price difference of the financial derivatives. However, unlike shares, the trader does not physically own the financial derivatives of a company. The trader simply agrees to exchange the difference between the opening and closing price of a position.

This type of trading is preferred over share trading, since it requires a lower amount of capital. Besides, an investor can reap high profits with a low investment amount. The investor can trade on rising prices by going long, and trade on falling prices by choosing to go short. The change in price of these financial derivatives is a profit for the trader or the investor. There are different techniques of CFD trading, and you must know when to call the shots. In this article, we share some of the important techniques that a trader must know.

Techniques

Hedging: This technique is often used by traders to protect long-term holdings against variable market conditions. It helps in minimizing risk and can be profitable in the long-term. Hedging is a process of holding a cheaper stock for long, and going short on an expensive stock. It reduces large losses in the long term.

Leveraging: A leverage effect can be expected, since the investment amount is relatively lower than the total value of the transaction. You can trade with a marginal amount, and this type of CFD trading is known as margin position. The ratio is usually 10:1, and helps in leveraging your investment.

Stop Loss Position: You can place an order for automatic stop loss. This means that you can exit a trade on the same day of transaction, that is, intraday. With this technique, you can set the automatic stop loss trigger and decide the price at which you intend to stop the losses. Using stop loss and limits is the key to successful trading. Progressive stop strategies, limit orders, and stop limit orders are some effective techniques in contracts for differences.

Apart from using these techniques, as an investor or trader, you must remember some of the golden rules of CFD trading. First, trading is different from investing. When you trade online, do not hold the derivatives for too long without evaluating the market conditions. These are fast moving financial instruments and require thorough evaluation. Second, it is important to book profits. Do not let greed empower your decision taking ability. Take rational decisions and book profits. Remember, the market will not move as per your expectations, it is volatile and you may end up with huge losses.

When you trade online, you must have the entire plan clear in the mind. Moreover, it is important to stick to the plan. Discipline is important. You must know when to enter, when to exit, when to place a stop loss trigger, when to book profits, and when to limit the order.

CFD trading, when executed with these techniques and rules in mind, certainly helps you make big money. Do not succumb to the emotions of greed; be professional with your transactions and book profits on time.