C F D & money management

(1) CFD

(2) Money management

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Contract For difference

In short, CFD trading is like buying stocks with a small capital and paying a small fraction of the total cost where mainly financed by the broker. CFD is a contract between you and the broker to exchange the difference of prices of a security or derivative. Meaning, you pay a small deposit to invest in a stock but do not actually own any share - but you get a good leverage.

Some brokers which offer CFD facility:-
CITY INDEX   <<click here

CMC MARKETS

Some of them are DMA or direct market access models and some are MM or market maker models. DMA models offer a better price closer to market price on the exchange but usually higher fees and commissions. Cityindex is a MM model where you cannot buy/sell in between the bid/ask spread but you enjoy very cheap commission rates.

Depending on your appetite for risks and trading style, it is better to choose a cheaper brokerage firm so that you can pop in and out of the market anytime.

CFD broker which is a DMA:-
CIMB SECURITES   <<click here


Commissions, brokerage, funding, financial rates:-

for DMA broker like CGS-CIMB Sinagpore

follow this link for more info: https://cfd.cgs-cimb.com.sg/cfd-commission-financing.html



MM broker e.g CITY-INDEX

follow this link for more info:
https://www.cityindex.com.sg/pricing-and-charges/


cardinal rule 3 - trade within your means: follow money management rules, use money you can afford and size positions within your control.

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MONEY MANAGEMENT & POSITION SIZING

A very important aspect of trading CFD and managing leverage properly to avoid margin call is to manage your risk and size your positions systematically.

Those who had attended my seminar may download these sample files on money management for CFD:-

http://www.mediafire.com/?pmyam1ii8ndyafo

sample CFD account:

http://www.mediafire.com/?8c2l4z0u0let4mu

Here is an extract of an article on this subject:-

Extract from: TradersLog (By Michael J. Carr, CMT )

Traders who do apply position sizing to their portfolios often follow rules of thumb, such as believing they should never risk more than 2% of their account size on any single trade. This is thought of as a money management rule, and the position size is then determined by doing the math to see how many shares you should be with a given stop loss. For example, with a $100,000 account, you could buy 2,000 shares of a $10 stock and face a potential loss of $2,000 with a 10% stop loss. That means the trader would have five positions in their account instead of the twenty that academic research finds to be best.

The 10% stop loss represents an initial step towards money management. Beginning traders usually spend a lot of time figuring out how to get in and out of a trade. Buy rules generally get the bulk of their attention, and sell rules are often frequently defined by how much money they are willing to lose on a trade. Stock traders often set an initial stop 8-10% below their entry price, and move it higher on winning trades. That is the extent of money management for many traders. By keeping a sell order about 10% below the current price, they think they have limited risk. However, some stocks can move 10% in a short period of time, and this would mean a trader gets stopped out during a normal move in the stock. That’s a simple money management strategy, but the problem with following a simple money management rule is that it doesn’t maximize gains.

This simple approach is also impractical for small accounts, which would be anything under $100,000. There is also no underlying logic as to why 2% is the magic level of loss that should be tolerated. The reasoning seems to be that you can endure a lot of 2% losses before you’re wiped out. But with a $10,000 account, that only allows for a $200 loss, which isn’t enough in the real world.

No trader will be right 100% of the time. Losses are inevitable, and need to be accepted. At first, traders shouldn’t expect to be right more than half the time. If we assume the trader is only correct four out of ten times, a very realistic scenario if you’re just starting, profits are still possible with correct position sizing and money management.

Successful traders need to let profits run and cut losses quickly. Before entering the position, traders need to compare the potential gains to the potential loss. There are many techniques to do this. Chart patterns are often used, especially in stocks or Forex, and systems are widely employed by futures traders. Potential gains need to be greater than the risk, when measured in dollars. Ideally, the trade should have a potential reward of at least $160 for each $100 risked.

If this condition is met, very small traders, even those with less than $10,000, can make money by holding as few as four positions at a time. With a 40% win rate, traders will see small but steady profits. Gains can be increased by adding to winners. This is an example of money management. Traders could add to positions when the gain is 50% of the profit target. This way, you’re letting winners run. The stop loss is strictly defined, based upon the measured risk rather than a strict percentage rule, so you’re already cutting losses quickly.

Money management is really the same as risk management, and controlling risk is widely recognized as a key to success in trading. Smart traders will base their trades on the risk-reward potential of the stock, or futures contract or Forex position. They’ll make more from winning trades than they lose on the trades that don’t work. And in the end, that’s all it takes to be a successful trader.

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capital is?  money you can afford to lose ... that is not urgently in need in the near term!