Trading Pal Blog

Contracts for a difference can be your trading staple fare if handled properly.

One account for stocks, forex, commodities and indices
What will you trade today? The choice is yours. Although I recommend you trade the instruments you have a feel for. Like fishing different fish work better with different baits and times of the day. Once you observe a given market you will know the critical times where things move and where things stagnate. You might even mitigate your risk by being long on an item and short on another related item (a form of arbitrage).

No fuss short selling
Why people would want to trade instruments where you can only go long baffles me. There is as much money to be made (or lost) on the way up as on the way down.

Sophisticated trade orders
Balanced orders like OCO (one cancels the other) allow for strategies to help you not being glued to your trading screen all day long (bad for your mental health). Pending orders also give you guaranteed execution while a sticky mouse or a slow internet connection in a busy market might rob you of the value of the spread or worse.

Huge leverage
This is the one feature that allows you to experiment. You can confirm or discredit your trading strategies with just $1,000 worth of capital. Remember paper trading is just that. No risk means no emotions. No gains no losses. You are always right in hindsight. Your strategy might be right but a lousy execution will ruin your trades. A stop too close will be triggered by a spike in the market. No paper trading will simulate that. You need to get involved to find out if trading is for you or not.
Some fools have given CFD trading a bad name by going crazy with leverage. Yes you can lose more that your capital but then why would you want to stand barefoot in the bathtub full of water and stick your fingers in the power point?

No commission (sort of)
CFDs by and large do not slap you with a commission just for the privilege of placing a trade. Instead CFD providers make their money through the spread. The spread is the difference between the buy price and the sell price at any given moment. If an index is quoted at 4000/4002 this means that you can buy at 4002 and sell at 4000. In other words if you buy and sell straight away you have a built-in loss of 2 points: the CFD provider's commission. To break even you have to wait for the market to move 2 points in your favour. For instance buy at 4002 and wait for the market to display 4002/4004. Then you can sell at 4002 and escape scotch-free.

MarketMakers - love them or hate them
The rumour has it that CFD providers can sniff where all the stop orders are and juggle the market just enough to hit them all. If you were a MarketMaker yourself you would realize that being pegged to a real market is their saving grace. Unless they themselves take real trades to counterbalance their customers CFD positions they would not stay alive very long. There might be some leeway here and there but by and large what a large CFD provider offers is on a par or better than what mainstream stockbrokers can offer.

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