With the ASX launching its new listed CFD product in November, there has been an influx of attention in the media with many suggesting that the demand for this product will be strong. Not surprisingly there has also been an increase in advertising from other providers, no doubt, in an effort to maintain market share. But the question that has to be asked is this product really suitable for retail investors?  Trading CFDs is very high risk and should only be contemplated by those with the required knowledge and skill in trading and in handling highly leveraged instruments. Some of the providers promote they offer education but you have to question how good is it when the average CFD trader only lasts a matter of weeks in the market. In my opinion, the education is used as a lure to attract clients, rather than to genuinely educate them. This was prevalent when options and warrants were introduced into the market, and we may just see a repeat of the providers coming out on top and the mum and dad investors left wondering what just happened. 

So what can we expect in the market? 

Last week I indicated that I was expecting the market to fall by a few per cent over one or possibly two weeks in order to bring some normality into our market. Since last Friday, the market closed lower up until Wednesday falling less than 1.5%. Yesterday, in a surprising move it rose strongly to recover what it had fallen in the preceding four days.  While I expected the market to rise slightly on Thursday before falling away again into next week, it now remains to be seen if the recent strong move has just delayed the fall I have been expecting. While the market will generally be bullish through to late December or possibly early January, I still believe it needs to fall over one or two weeks in the very near future.

It seems that CFDs have been a ‘hot’ topic for a while with articles and ads promoting how easy it is to make money from this instrument. However, in my experience the people electing to trade CFDs simply do have the knowledge or the skill to trade them. In fact a number of CFD providers have indicated that around 80% of the clients opening accounts do not have the knowledge to fill out the forms let alone trade the instrument, which is frightening in anyone’s book. 

This week Australia’s largest CFD provider, CMC Group, has had to cease accepting new applications while ASIC reviews their product disclosure statement. In my view a number of CFD providers do not fully disclose the risks associated with trading this highly leveraged instrument, therefore I hope the review will change all this because it would seem that the only people making any real money from CFDs are the providers themselves.  

So whats happening on the market.

Last week I indicated that the market would either fall for another week or rise having already fallen for one week as expected. Despite having risen earlier in the week, the market has so far closed lower than it opened this week, although in technical terms we are experiencing what is known as an inside week given that the market has not traded higher or lower than last week. Given this, I am expecting the All Ords to rise next week and continue trading up for the next three weeks until around 15 October. If, however, the market does fall next week, it is possible it will continue to trade down until 15 October.