Anybody trade CFDs?

[ingenieur]

I've been trading CFDs on and off for about 5 years now with mixed results. Anybody else done it well enough that it was beneficial and worth doing?

[CraigyMc]

You'd get better odds in a casino, with the house taking less.

[DaveA8]

CraigyMc said:

You'd get better odds in a casino, with the house taking less.

There is absolutely nothing wrong with CFD's from the major brokers, the fact is than many people use them incorrectly or can't control their impulses.
Ten years ago I might have said the same thing but it's not the instruments fault that a user doesn't understand them or more importantly don't understand themselves.
The real issue is that brokers are too quick to allow trading in them and I have 3 accounts where I could trade them and IBKR which is the largest were really strict about permissions despite me completing all applications etc, I ended up having a long phone call with a risk manager who signed it off, IG was a slowly slowly thing and Trading212 would let my dog trade.
CFD's have a place even in a well managed portfolio, short term hedging, short term momentum.
I've had calls from IG as I've left reasonable amounts of cash on my CFD account but I'm okay with that and strangely since IG earn on money, they don't seem to call.

[ingenieur]

DaveA8 said:

CraigyMc said:

You'd get better odds in a casino, with the house taking less.

There is absolutely nothing wrong with CFD's from the major brokers, the fact is than many people use them incorrectly or can't control their impulses.
Ten years ago I might have said the same thing but it's not the instruments fault that a user doesn't understand them or more importantly don't understand themselves.
The real issue is that brokers are too quick to allow trading in them and I have 3 accounts where I could trade them and IBKR which is the largest were really strict about permissions despite me completing all applications etc, I ended up having a long phone call with a risk manager who signed it off, IG was a slowly slowly thing and Trading212 would let my dog trade.
CFD's have a place even in a well managed portfolio, short term hedging, short term momentum.
I've had calls from IG as I've left reasonable amounts of cash on my CFD account but I'm okay with that and strangely since IG earn on money, they don't seem to call.

Did you do much trading, you didn't say. You mentioned 'impulses'. Is the opposite to impulse to spend time with fibonacci retracement and that sort of thing or is there a sensible middle road?

[DaveA8]

ingenieur said:

Did you do much trading, you didn't say. You mentioned 'impulses'. Is the opposite to impulse to spend time with fibonacci retracement and that sort of thing or is there a sensible middle road?

I am "active" as I now earn most of my living from it but I put a relatively small number of positions on and am now much more disciplined than ever before.
As for technical trading, I am no technician but if one is an active investor, technicals are equally important as fundamentals ( even Warren Buffett believes that).
The problem is all these things are nuanced and require an element of skill, decision making and discipline. Someone could be the greatest technical or fundamental person but if the position goes against them and they have no discipline, they're stuffed.
I last traded CFD's in the run up from Nov because of technical and macro but I will never capture the whole move on anything because I absolutely fear large drawdowns, a large drawdown starts as a small unmanaged drawdown.
So I am active but my investing/speculating has been transformed by understanding and respecting technicals but not being a slave to them, they are just a part of a wider method.
I am not a scalper or daytrader who watches a 5min chart but I watch daily and weekly and then the 65 min if I'm getting in or concerned. I do not place stops typically but am rigid in closing if the level is hit even during the day. I may close and a week later if parameters allow go back in.
CFD's were good on the Nov move as the whole market went up but given most of the gains for a while appear to be made, I'm back to my individual stocks and options.

[ingenieur]

DaveA8 said:

ingenieur said:

Did you do much trading, you didn't say. You mentioned 'impulses'. Is the opposite to impulse to spend time with fibonacci retracement and that sort of thing or is there a sensible middle road?

I am "active" as I now earn most of my living from it but I put a relatively small number of positions on and am now much more disciplined than ever before.
As for technical trading, I am no technician but if one is an active investor, technicals are equally important as fundamentals ( even Warren Buffett believes that).
The problem is all these things are nuanced and require an element of skill, decision making and discipline. Someone could be the greatest technical or fundamental person but if the position goes against them and they have no discipline, they're stuffed.
I last traded CFD's in the run up from Nov because of technical and macro but I will never capture the whole move on anything because I absolutely fear large drawdowns, a large drawdown starts as a small unmanaged drawdown.
So I am active but my investing/speculating has been transformed by understanding and respecting technicals but not being a slave to them, they are just a part of a wider method.
I am not a scalper or daytrader who watches a 5min chart but I watch daily and weekly and then the 65 min if I'm getting in or concerned. I do not place stops typically but am rigid in closing if the level is hit even during the day. I may close and a week later if parameters allow go back in.
CFD's were good on the Nov move as the whole market went up but given most of the gains for a while appear to be made, I'm back to my individual stocks and options.

With stops and levels you have to figure out when it's okay to make a loss. That must be a very difficult thing to manage as nobody wants that. So how do you decide to accept you've opened a bad trade and you should kill it?

[Zoon]

ingenieur said:

I've been trading CFDs on and off for about 5 years now with mixed results. Anybody else done it well enough that it was beneficial and worth doing?

If you've been doing it five years and are questioning the outcomes, I think you may have answered your own question.

[ingenieur]

Zoon said:

ingenieur said:

I've been trading CFDs on and off for about 5 years now with mixed results. Anybody else done it well enough that it was beneficial and worth doing?

If you've been doing it five years and are questioning the outcomes, I think you may have answered your own question.

How many hours / number of trades do you think it requires to consider yourself a well trained CFD trader? Or is it simply a case of being born with it?

[limpsfield]

I have traded CFDs/spread bets for a long time and worked in the industry for 20 years.

It is just a vehicle to gain leveraged exposure to a market. Where people go wrong, in my not so humble opinion, is they are too short-term and do not manage their risk correctly, if at all.

I have a mix of trades on US stocks using CFDs and some have been running for a few months. As the US market has been going up then this has done well and the return is around 20% of margin requirement over the last three months.

Once again, CFDs are just the mechanism for carrying ou the leveraged trade. They are not "bad" in and of themselves. But when people use them to try and profit e.g. from a move in gold in the next 4.5 minutes is where they trip themselves.

75% of traders lose money as the risk warnings tell you. Also, around 50% of trades are closed in the first hour. This is a ridiculous approach. With trading, whatever the product being used, people are far too short term.


Also, I read this morning - it is a different product, options, but not surprisingly similarly not-profitable outcomes.

"India accounted for 78% of all options in 2023 and 95% of those were only held for less than 30 minutes with only 10% of them making money."

https://www.reddit.com/r/wallstreetbets/comments/1...

[CraigyMc]

limpsfield said:

75% of traders lose money as the risk warnings tell you.

The 75% you state as an example is a figure that updates quarterly for each institution, and the warning only exists because the FCA took action to ensure it did under this policy statement --> https://www.fca.org.uk/publications/policy-stateme...
It's usually above 80% that lose, and sometimes above 90%.

Retail investors trading CFDs is a bad enough idea that it's outright banned in several jurisdictions globally.

When I wrote "You'd get better odds in a casino, with the house taking less", I wasn't just being ironic or flippant. Retail investors would literally be better doing that.

[ingenieur]

limpsfield said:

I have traded CFDs/spread bets for a long time and worked in the industry for 20 years.

It is just a vehicle to gain leveraged exposure to a market. Where people go wrong, in my not so humble opinion, is they are too short-term and do not manage their risk correctly, if at all.

I have a mix of trades on US stocks using CFDs and some have been running for a few months. As the US market has been going up then this has done well and the return is around 20% of margin requirement over the last three months.

Once again, CFDs are just the mechanism for carrying ou the leveraged trade. They are not "bad" in and of themselves. But when people use them to try and profit e.g. from a move in gold in the next 4.5 minutes is where they trip themselves.

75% of traders lose money as the risk warnings tell you. Also, around 50% of trades are closed in the first hour. This is a ridiculous approach. With trading, whatever the product being used, people are far too short term.


Also, I read this morning - it is a different product, options, but not surprisingly similarly not-profitable outcomes.

"India accounted for 78% of all options in 2023 and 95% of those were only held for less than 30 minutes with only 10% of them making money."

https://www.reddit.com/r/wallstreetbets/comments/1...

There are lots of things which encourage the 'scalping' type trading where people are in it for a few minutes just to sell quickly and get a few quid. Seems from what you are saying and what you've read that this is where the big losses are. I can see why people do it though, some platforms charge a daily fee while you have a trade open so discourage trading over more than a day. Longer bad trades magnify losses so if the trade isn't going well the longer you keep it open the worse your position and so there is an impulse not to keep a loss making trade open for longer. I can see why people like fast / high turnover style.

[limpsfield]

CraigyMc said:

limpsfield said:

75% of traders lose money as the risk warnings tell you.

The 75% you state as an example is a figure that updates quarterly for each institution, and the warning only exists because the FCA took action to ensure it did under this policy statement --> https://www.fca.org.uk/publications/policy-stateme...
It's usually above 80% that lose, and sometimes above 90%.

Retail investors trading CFDs is a bad enough idea that it's outright banned in several jurisdictions globally.

When I wrote "You'd get better odds in a casino, with the house taking less", I wasn't just being ironic or flippant. Retail investors would literally be better doing that.

I think most retail investors would be better off betting on red or black, but that is because most should go nowhere near trading, full stop.I don't think leveraged trading should ever have been made as open as it is to the public in general, but that genie is well and truly out of the bottle now.

I started trading back in 1996 and it has never been more cost-effective than now, although of course the cost of leverage is currently higher due to the rise of global interest rates.

But most people will always lose - however, this is not due to CFDs per-se, more due to a lack of appreciation of the risk and a too short-term, get rich quick mentality, in my opinion.

[limpsfield]

ingenieur said:

There are lots of things which encourage the 'scalping' type trading where people are in it for a few minutes just to sell quickly and get a few quid. Seems from what you are saying and what you've read that this is where the big losses are. I can see why people do it though, some platforms charge a daily fee while you have a trade open so discourage trading over more than a day. Longer bad trades magnify losses so if the trade isn't going well the longer you keep it open the worse your position and so there is an impulse not to keep a loss making trade open for longer. I can see why people like fast / high turnover style.

Most (all) platforms are going to charge a daily fee for holding overnight. You are using leverage (borrowed money, to keep it simple) so there is a cost for that.

If I do a CFD trade on Microsoft for example and hold it for a year then that is going to cost me about 8% in financing. CFDs are not designed for longer term holding but you can if you want. I've held Microsoft since 12 Jan using CFDS so it has cost me about 1.3% in financing, the stock is up 7.5%. Financing is the cost of doing business when trading using leverage.


Most people lose because their profits are smaller than their losses - they have the risk reward upside down. This will neevr change, and is perfectly illustrated by this excellent article. Forex CFDS but it doesn't matter, same difference

https://www.dailyfx.com/forex/fundamental/article/...

I can't imagine a point where I don't use leveraged trading. But also, most people should not do it because they don't take it seriously and the majority are always going to lose. It has aways been this way.

[DaveA8]

ingenieur said:

With stops and levels you have to figure out when it's okay to make a loss. That must be a very difficult thing to manage as nobody wants that. So how do you decide to accept you've opened a bad trade and you should kill it?

Many years ago, I read a quote a from very successful trader " trading can't be taught but it can be learned" and despite hearing that, it didn't sink it for a long time.
It's a terrible Americanism but you have to find your "process", I spent years paying various tipsheets, publications etc for opportunities and of course if the price rose great but as soon a wobble occurred, I was terrified and didn't know what to do. No tipster knows my threshold for pain and I blamed them but the tips were good up until they were not.
One of the reasons why I am cautious on trading the Indices is they are very prone to factors which are impossible control and given the moves in Nasdaq 100 on a daily basis, risk management is very difficult unless there is a very clear trend and even then 0DTE options and crush can create problems.
Assume the Nasdaq100 can move 400pts in a day, assume you apply a 3 to 1 risk reward ( risk 400 to make 1200), there is a low probability of that unless there is a strong upwards bias that's a poor ratio but at times like Nov and early january this was possible. I can assure that people who made money on those moves will still be trying to steal a bit here or there and giving it back and I owe an apology to the 2nd poster as to that extent it is a casino but only if someone chooses to play.
As for options, most people assume that it refers to being a buyer but the real long term income is from selling a well managed options portfolio backed by the underlying

[ingenieur]

limpsfield said:

ingenieur said:

There are lots of things which encourage the 'scalping' type trading where people are in it for a few minutes just to sell quickly and get a few quid. Seems from what you are saying and what you've read that this is where the big losses are. I can see why people do it though, some platforms charge a daily fee while you have a trade open so discourage trading over more than a day. Longer bad trades magnify losses so if the trade isn't going well the longer you keep it open the worse your position and so there is an impulse not to keep a loss making trade open for longer. I can see why people like fast / high turnover style.

Most (all) platforms are going to charge a daily fee for holding overnight. You are using leverage (borrowed money, to keep it simple) so there is a cost for that.

If I do a CFD trade on Microsoft for example and hold it for a year then that is going to cost me about 8% in financing. CFDs are not designed for longer term holding but you can if you want. I've held Microsoft since 12 Jan using CFDS so it has cost me about 1.3% in financing, the stock is up 7.5%. Financing is the cost of doing business when trading using leverage.


Most people lose because their profits are smaller than their losses - they have the risk reward upside down. This will neevr change, and is perfectly illustrated by this excellent article. Forex CFDS but it doesn't matter, same difference

https://www.dailyfx.com/forex/fundamental/article/...

I can't imagine a point where I don't use leveraged trading. But also, most people should not do it because they don't take it seriously and the majority are always going to lose. It has aways been this way.

Good article in your link at the end. There's a lot of people out there peddling misinformation. I think some people make a career from pretending they know something about trading and sell advice and courses but actually do not trade (or else wouldn't they just trade to make money instead of offering much lower paid courses)

[sideways sid]

ingenieur said:

With stops and levels you have to figure out when it's okay to make a loss. That must be a very difficult thing to manage as nobody wants that. So how do you decide to accept you've opened a bad trade and you should kill it?

Knowing that you're going to incur losses is a pretty obvious and fundamental part of trading.

Understanding how you're going to adapt takes discipline.

That discipline comes from identifying an tradeable edge and exploiting it to achieve the level of expectancy that your backtesting suggests you can achieve.

You say you have been trading for 5 years, but your questions suggest that your understanding of what you're trying to achieve is quite limited.

[ingenieur]

sideways sid said:

ingenieur said:

With stops and levels you have to figure out when it's okay to make a loss. That must be a very difficult thing to manage as nobody wants that. So how do you decide to accept you've opened a bad trade and you should kill it?

Knowing that you're going to incur losses is a pretty obvious and fundamental part of trading.

Understanding how you're going to adapt takes discipline.

That discipline comes from identifying an tradeable edge and exploiting it to achieve the level of expectancy that your backtesting suggests you can achieve.

You say you have been trading for 5 years, but your questions suggest that your understanding of what you're trying to achieve is quite limited.

Was there one particular question which gave you that impression and for what reason?

[sideways sid]

ingenieur said:

sideways sid said:

ingenieur said:

With stops and levels you have to figure out when it's okay to make a loss. That must be a very difficult thing to manage as nobody wants that. So how do you decide to accept you've opened a bad trade and you should kill it?

Knowing that you're going to incur losses is a pretty obvious and fundamental part of trading.

Understanding how you're going to adapt takes discipline.

That discipline comes from identifying an tradeable edge and exploiting it to achieve the level of expectancy that your backtesting suggests you can achieve.

You say you have been trading for 5 years, but your questions suggest that your understanding of what you're trying to achieve is quite limited.

Was there one particular question which gave you that impression and for what reason?

Firstly, I enjoy your input to the barge thread and do not want to offend personally, but your questions are a bit vague, and asking about stop losses after 5 years of trading seems a bit back-to-front.

After Covid, the last 3 years has been a roaring bull market, and being long almost anything would have made money. Being leveraged to the upside would have increased your profits. To be asking whether its worthwhile suggests you were not net long, so were perhaps positioned to counter the trend.

If you said you were broadly directional in XYZ securities, to achieve XYZ objective over XYZ timeframe, and the catalyst to open a position was XYZ, with defined rules to increase and/or decrease position size based on XYZ, to take profit based on XYZ, and use stops based on XYZ, it would be easier for readers to give you a steer. It sounds like you have some pretty experienced people on here happy to help. Having insight into past performance or your equity curve might help you to see what worked well (and when) and what didn't.

The alternative is to have been opening positions on a whim, without a clear view of when to close them, letting emotion take over a losing position, and closing it based on account balance and personal cash needs rather than the fundamental reason for holding the position.

Perspective plays a part here, too. A stop loss half a standard deviation away from spot is unlikely to protect an account targeting profits one standard deviation away.

Hope that helps a bit.

[DaveA8]

sideways sid said:

Perspective plays a part here, too. A stop loss half a standard deviation away from spot is unlikely to protect an account targeting profits one standard deviation away.

It's even more simple as the subscription chart packages have built in metrics which will give a good idea where a stop should be placed if all things remain equal, the problem is with the majority of what I look at the volatility means I will have stops a long way and guessing a closer point to have a smaller stop loss effectively guarantees that loss.
There are many situations where if I was paper trading, I'd have made multiple returns but where real money is at risk, I just can't trade it

[ingenieur]

sideways sid said:

ingenieur said:

sideways sid said:

ingenieur said:

With stops and levels you have to figure out when it's okay to make a loss. That must be a very difficult thing to manage as nobody wants that. So how do you decide to accept you've opened a bad trade and you should kill it?

Knowing that you're going to incur losses is a pretty obvious and fundamental part of trading.

Understanding how you're going to adapt takes discipline.

That discipline comes from identifying an tradeable edge and exploiting it to achieve the level of expectancy that your backtesting suggests you can achieve.

You say you have been trading for 5 years, but your questions suggest that your understanding of what you're trying to achieve is quite limited.

Was there one particular question which gave you that impression and for what reason?

Firstly, I enjoy your input to the barge thread and do not want to offend personally, but your questions are a bit vague, and asking about stop losses after 5 years of trading seems a bit back-to-front.

After Covid, the last 3 years has been a roaring bull market, and being long almost anything would have made money. Being leveraged to the upside would have increased your profits. To be asking whether its worthwhile suggests you were not net long, so were perhaps positioned to counter the trend.

If you said you were broadly directional in XYZ securities, to achieve XYZ objective over XYZ timeframe, and the catalyst to open a position was XYZ, with defined rules to increase and/or decrease position size based on XYZ, to take profit based on XYZ, and use stops based on XYZ, it would be easier for readers to give you a steer. It sounds like you have some pretty experienced people on here happy to help. Having insight into past performance or your equity curve might help you to see what worked well (and when) and what didn't.

The alternative is to have been opening positions on a whim, without a clear view of when to close them, letting emotion take over a losing position, and closing it based on account balance and personal cash needs rather than the fundamental reason for holding the position.

Perspective plays a part here, too. A stop loss half a standard deviation away from spot is unlikely to protect an account targeting profits one standard deviation away.

Hope that helps a bit.

That is helpful but I think you took too much out of what I said... as you pointed out I didn't say much. For all you know I may have only ever done one trade in that time. Conversely, if I had been employed as a trader doing it every day for 5 years it's extremely unlikely I'd be looking for peoples opinions on how it all works. No doubt you will have noticed over time that there are a hella lot of quack doctors and shills making a living out of writing books and selling tips as mentioned above. So a thread like this on here is like asking to hear from real people who aren't just trying to flog a course what they think about the business. And to be fair... I think on the whole it has been useful to ask the questions.