Hi
I have just given CFDs a go - twice. £5000 each in two accounts - in less than 3 months the first account had dwindled to £2000, and, later, in less than a month, the second account was down to £2000 - wanted to pull the plug but was persuaded otherwise, now that account is worth £143. With the first broker, all but one of my tradees were advsied - I was unlucky in that after I put a long on Rio Tinto, one of their guys got arrested and the stock stopped out.
My time would have even been shorter lived had I not intervened to move stops.
Thing is, professional advice stinks. Apart from one independent financial adviser.
Will tell more about where I am overall if you replay to this. Here is my diatribe written a few weeks ago:
A few weeks ago I had a position on BAT, which looked viable that morning. I had moved the stops back up to cover my costs. While I was out, or neglected to keep an eye on things, it plummeted beyond the stop, so all I lost was the commission. I would have lost a lot more.
In an ideal world I would have taken profits at 11 a.m. (you couldn't expect to predict the peak at 11:40).
This inability to monitor the account, or have it monitored for the client (FSA regs etc) has cost me with both Accendo and Galvan. Added to which this is, of necessity, a very intrusive form of trading. Whoever I am with, the swings that occurred with BAT were too fast for a trader to get around every customer. And, naturally, they will have a priority list based, again logically, on how much the client would lose. It is only to be expected that someone who will lose £100,000 will get a call before someone who will lose £300.
Again and again, a recommendation normally is 'for the day' - events move too quickly for a position to be predicted to rise and rise, or fall and fall, over a period of days.
I have had to work hard to minimise my losses. It is due to my intervention that the recent losses have, until BAT, been minimal. But I don't want to have to work that hard, and devote too much of my day, for this.
I do not believe you can guarantee, as near as possible, that the situation of taking at a peak or not, then the price sliding down can be avoided by ANY CFD trader.
When you set the fact that I put 2 lots of £5K, got refunded 2K 6 weeks later and am worth £450 now on the second investment of 5K, had, of necessity, received many phone calls, made many phone calls, monitored (for not enough time) the market, been advised to hang on only for the process to drop/rise, I am not inclined to trade CFDs. The necessity of being on hand by the computer makes for a 'sad' existence.
Whether I had put 5K or 10K probably wouldn't have made any difference, the positions would have been twice as large.
Yes, I am feeling sore. But I also apply a logic to this. The prospect of making large profits are limited - what stock rises more than 5% a day?, and, of course, that depends (for each client) what time they 'get in'. By 8:30 the share may have risen 2%, leaving a 3% rise. On 10 times leverage each 1% yields £100, so it has to rise 1% before the client makes a profit. As I said, most shares don't get as far as 5%.
I want, as far as CFDs are concerned, a situation that is impossible. A low 'intrusion' and a self-monitoring set-up - both of which do not apply to CFD setups.
A normal share situation means you can, although missing opportunities provided by peaks, wear the losses as the shares will go up again.
My worst, apart from the suspended shares I have now, is Northern Petroleum, bought at £1, down to 30p a week later, sold for £1.20 ('peaked later at £1.40 in that cycle) 6 months later. All I paid was £30 commission and stamp duty.
CFDs won't let you do that.
• Shares rarely move more than 2% on the day, unless it is down
• 1% about covers commission costs and interest, so the stock has to rise by 1% before your costs are covered. The stop can be moved but often the fluidity of the stock will mean that the position is stopped out prematurely. However, hanging on can mean that the stock can fall
• If your advisor thinks that a share looks promising, by the time he gets to talking with you, after other customers, the share has already moved, perhaps 3% or 4% and probability dictates any further rise will be limited or go negative.
• A share is ‘in fashion’ only for the day, it is near impossible to predict what it will do the next day, or over a longer period
• Movements downward can be much faster and of a higher movement than movements upward
• Movements downward may be replaced by a fast movement upwards but by then it is too late – you are stopped out
• Many ‘stopped out’ instances could have been avoided if someone had monitored the stock and moved the stops, especially with sharp movements. The trader might call you to move the stops; that happened only once when they needed moving down. It is more up to the informed client to monitor and take action, the problem being that either you are glued to a monitor for 8.5 hours a day or the position is stopped out while you are away.
• On the other hand, ringing your trader can be problematic as he is always on the phone to someone else – by the time he gets back to you, either your profit has slumped or you are stopped out
• Traders have a set of favourite shares they peddle. Sometimes they are already high when advised to go long.
• It is not always possible to check a chart when recommendations are made, so the client often agrees with a recommendation. It is hard to say if the trader is thinking of themselves or the client.
• Often traders cite miners and banks as stocks to avoid. This is hard to follow as other shares can be as volatile.
• I have read that if a stock falls below a stop (non-guaranteed stops are less expensive) some market lenders will close all positions to get the margin back to within bounds.
John
