. . . So far on my demo account I've been taking far too much risk but have achieved a 10% a day return. This is mostly trading the DAX and Nasdaq.
If I do move to a real account I think I would pare it down to by a factor of 5 so would be lucky to archive a 1-2% daily return, which from what I understand isn't bad and would mean that it would take more than just one bad trade to wipe me out!
Hi Ciraric,
Most brokers - if not all of them - that offer spread betting accounts also offer CFD accounts. Likewise, they offer good instruction (videos and descriptions etc.) so that prospective customers can understand the differences and can make an informed choice as to which type of account is best for them. Besides that, this FAQ might help:
What are the Pros and Cons of Spread Betting Vs CFDs?
In terms of whether your demo account is a spread betting one or a CFD one, take a look at any of your Dax trades. If you're trading at £1.00 per point and you have a winning trade of 30 points, then your equity balance will increase by £30.00. The same thing will apply to your Nasdaq trades. If it's a CFD account, it won't do this as you'll be trading in the currency of the underlying instrument - i.e. euros for the Dax and U.S. dollars for the Nadaq and then converting to GBP £s.
Of far greater importance than whether you trade via spread bets of CFDs is your risk management strategy. If you're making 10% a day, then you're almost certainly waaaaaaay over leveraged, i.e. you're trading at a much larger stake size than your account will tolerate. If it only takes one bad trade to blow up your account - then this is guaranteed to happen. No ifs, no buts, it's simply a question of time. I recommend you keep your leverage to similar levels that a direct market access broker would require if you traded equities, i.e. 3:1 or 4:1 tops. Very roughly, take the Dax as an example which is trading at around the 10,000 mark. If you want to trade with zero leverage, you'll need £10,000 in your account and trade at £1.00 per point, so that if the Dax goes to zero, the most you could possibly lose (assuming you're long) is £10,000. If you only have £2,500 in your account (25% margin), and Dax goes to zero, then your broker will send the heavy mob round to collect your debt of £7,500. As I say, this assumes a trade size of £1.00 per point. If you're trading at £5.00 per point (i.e. increased leverage), then your debt jumps to £47,500!!! The bottom line is this: always, always always look at your risk and what you stand to lose if things go pear shaped and do everything possible to keep your risk to an absolute minimum.
So, as a starting point, I suggest you only trade the Dax at £1.00 per point for every £2.500 in your account. If you have £5,000 then move up to £2.00 per point etc. That may sound conservative, but it's not really. Take 24th August just gone. The high to low range that day was well over 6%, so you could easily have lost £500.00 in a single day. That's 20% of your account at £1.00 per point. At £5.00 per point, it would have been be game over. Lastly, if you've not yet seen it, check out this Sticky:
Essentials Of 'Risk & Money Management' .
Tim.
