CFD investors need good education
Published in Money Tips, May 2008
As everyday investors flock to trade Contracts for Difference (CFD) with the allure of big returns almost irresistible, Wealth Within chief analyst Dale Gillham has implored novices to educate themselves or risk losing their capital, and quickly.
“The majority of CFD education is provided by CFD providers or brokers and is quite one sided, because they are primarily interested in people opening up an account with them” said Mr Gillham.
“If you do not have the correct strategies and money management rules you can lose your capital very quickly. However the opposite is also true, you can also make a lot of money fast and of course this is the attraction to investors. But it is crucial to learn how to trade CFDs. The problem arises when people who understand how the instrument works believe they have the necessary knowledge to successfully trade using it. And unfortunately most don’t”.
The CFD trade market is attracting a broad range of investors, from professionals servicing the finance and investment industry to mums and dads who want to earn additional income to support their lifestyle choices. Because of this, Mr Gillham’s private investment company Wealth Within has introduced Australia’s first and only nationally accredited CFD trading course.
“Most of the information out there is on the actual instrument itself, how the leverage works and so on and is provided by the CFD provider or broker. This course goes into the strategies on how to trade them, the money management rules, the different techniques to use to trade them. It teaches the student what to do so they can design their trading plan around that. It’s done by traders for traders, not by a company wanting you to open an account with them.”
“When trading CFDs, you generally get to leverage 10:1, which means for every $1 you can have exposure to $10 worth of CFDs. In other words, you can trade a small amount of money to gain significant leverage, which is why many people are often attracted to CFDs. The downside is how rapidly you can lose your position - a 1 per cent change in the price can turn into a 10 per cent or 20 per cent loss. And daily price changes like this are commonplace. This is why I urge people to know what they are doing before they trade CFD’s.”
