There's a battle being staged in financial markets, that's set to intensify as issuers of Australia's hottest investment product - contracts for difference, of CFDs - grapple for business in the emerging market.
Louise Bedford, a trading expert and principal of web-based operator Trading Secrets, says the key challenges for anyone who wants to start trading CFDs are to make sure they are emotionally suited to trading and have the investment skills to handle highly geared investments. "You shouldn't trade CFDs until you have had experience trading shares," she says.
Szabo, of IG Markets, acknowledges that even with the day-trader levy, the zero brokerage offer has taken the current price competition to a new level. "It is a fairly small firm so it's not clear that it will have a big impact, but we are definitely monitoring the situation," he says. While not commenting directly on Marketech, he also cautions investors that opting for a small firm generally means there may be less financial strength backing their trades should markets hit major turbulence.
Even before the arrival of listed CFDs, existing over-the-counter issuers, including market leaders CMC Markets Australia and IG Markets, had been competing on price, with CMC recently trimming its commissions. A smaller rival, Perth-based Marketech, has gone further by completely abolishing commissions - or brokerage fees - on CFDs issued over shares in the top 500 listed companies.
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CFD Brokers And CFD Providers Australia
CFD Brokers And CFD Providers UK
So you have to weight up the advantages and disadvantages, eg their commissions, margins, and any other fees, and look at what kind of trading system you have, eg whether you can trade in the morning or not, to see which CFD broker suits you better.
READ BELOW >> Secrets of trading cfds
The first point to remember, she says, is that having the right mindset means more than simply being able to handle some risk and remain calm - well, reasonably calm - when the market moves against you. While this is a valuable trait, which Davey bolsters through regular meditation, it is even more important to avoid letting your ego rule.
"If you are the type of person who needs to be right all the time, who is so confident in your own research and trading ability that you can't accept defeat when the market moves against you, then you probably aren't cut out for trading CFDs," she says.
People like this typically fail to cut their losses when they get it wrong, she says. "One wrong trade that is allowed to run is usually the reason a trader goes bust. It shouldn't happen, but it can. I make lots of poor calls, but I keep my losses small. You then have scope to more than compensate for these by making profitable trades."
The other important factors for successful CFD trading are discipline and a commitment to keeping track of one's activity. Trading discipline consists of working out, then sticking with, a plan for every trade - when to buy, when to sell and what to do if the trade is succeeding. "You need to know the steps you will take in advance rather than responding to developments in an ad hoc way."
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