CFDs a good investment or gambling? Market Wrap 18-08-09

http://www.youtube.com/watch?v=sU11ypF2xrw

CFDs or Contracts For Difference have been a ‘hot’ topic for a long while with articles and ads in newspapers and magazines promoting how easy it is to make money from this instrument. This promotion has certainly been successful over the years in attracting thousands of new customers seeking instant riches. However, in my experience many of the people electing to trade CFDs simply do have the knowledge or the skill to trade them. In fact I believe that around 80% of the clients opening accounts do not really have the knowledge to fill out the forms let alone trade the instrument, which is frightening in anyone’s book and it’s no wonder many loose.

There is the view of let the buyer beware, but in my view CFD providers do not adequately disclose the risks associated with trading this highly leveraged instrument, or if they do it is in the fine print and written in jargon that most would not understand. Fancy marketing aside the questions is should they really be held accountable for individuals that simply want to gamble with their money in a market where only the educated survive?

So what can we expect in the market?

After more than a week moving sideways and looking like it was finding resistance, yesterday the All Ordinaries rose strongly to continue its strong run up since March. It is now well and truly into my price target area of between 4200 and 4600 points, however time is stretching past the point at where I believed the market would turn. The market cannot continue to rise without some sort of pull back in price, and the longer in time that it rises the higher the probability that the fall will occur. Given this we still need to expect the market will fall away very soon, and investors need to be patient rather than jump in now thinking they are missing out on making profits. As a trader and market commentator I have always found that it far better to be overly conservative than overly aggressive, as it is not how much you make on any one investment that counts but rather how much you do not loose.

As I mentioned last week how far the market moves down when the fall starts will indicate whether we can expect further falls or whether the next bull-run will commence. For now make sure you set stop losses so as to protect capital.

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