Let’s face is not everyone is cut out to be a scalper or day trader after all sitting in front of your PC for hours on end watching numbers go up and down can be stressful. For most people day trading is too difficult as it’s a high risk reward job and requires a medium to large capital outlay at the start. The emotion of day trading often gets to novice traders, being able to manage your emotions is what distinguishes good traders from bad. The fact is not everyone can be a day trader.
When looking inside them minds of successful traders there are certain characteristics that always stand out. Some of the most common characteristics are:
Analytical Mind Good day traders have analytical minds and are able conduct quick calculations and think on their feet, they must be able to identify trends and patterns without relying on a fancy chart or computer program.
Confidence All successful day traders are confident, they are decisive, able to think quickly and have no time for uncertainty or self-doubt as this is what often leads to missing some of the best trading opportunities of the day.
Self Belief Self belief goes hand in hand with confidence, you have to believe in your decisions and run with them. If you are indecisive perhaps day trading is not be a suitable career for you.
Discipline All successful day traders need discipline, once you have a plan stick to it. When day trading you can lose money as well as make money, as losses can result in an end to your career you need to manage your risks, know where to set your limits and stop loss orders accordingly. Once you have met your objectives do what you planned don’t let greed or fear take control of you.
Decisiveness Good day traders don’t hesitate, they run with their decision and trade what they think is right, hesitation often results in missing out on good trading opportunities.
Passion Day trading involves being passionate about the market, a good day trader never switches off tracking the market day in and day out following news globally, analysing charts and looking at quote screens. This all has to be processed as quickly as possible, this is of course is what will give a good day trader an edge.
Dealing with Failure You can never expect to win all the time this is a motto every day trader should remember. You will lose on some occasions and win on others however, as long as you ensure that over time you win more than you lose you will always be successful. If you cannot accept losses then day trading is probably not for you as all good day trades will suffer losses at some stage.
Concentration When day trading you will need to quickly analyse allot of data and reports in order to arrive at decisions quickly and act fast, this all happens in real time so you must be able to focus and avoiding all distractions during the trading session.
If this sounds like you then perhaps you should take up a career in day trading and learn more about CFDs in this very informative free CFD guide.
It’s not hard to find blogs and forums where people talk about the benefits of CFDs over shares but have you questioned whether the people actually writing these comparisons are traders who have experience in both financial instruments or are they just paid authors out to promote CFDs. In this quick review we will touch on the differences between both CFDs and shares and highlight the unique aspects of each product that has allowed traders and investors to harness the power of their investment portfolio from the comfort of their own lounge room.
CFDs and shares are very different not only in the way they work but also in how they are traded. One of the fundamental differences is the fact that CFDs are an over the counter or OTC product meaning your transactions are not conducted on an exchange but rather with the CFD provider that you are dealing with. Shares on the other hand are traded on an exchange meaning that you are buying and selling off other people in the market with your stock broker simply acting as a conduit providing you with a gateway to the market.
So now that you know one of the most important fundamental differences between CFDs and shares let’s get into some of the key mechanical differences in detail.
Settlement One of the most apparent differences between both products is the way in which they are settled. When you buy shares on the stock exchange you don’t have to pay for the share for three days, conversely when you sell shares you do not receive any money for three days. The transaction day plus 3 days or T+3 is the settlement period set by the clearing house not the broker. Of course when trading CFDs there is no clearing house involved as the transaction is OTC this means the your CFD provider essentially sets the rules, as CFD providers typically do not want to wear the risk of having the settlement of a transaction fail they will ask for the money upfront, this concept of same day settlement is known as T+1. It’s worth noting that some online share brokers also apply T+1 settlement to minimise the risk of settlement failure.
There really is no real advantage of T+1 or T+3 settlement as ultimately the net effect is the same, however most active traders prefer same day settlement for the simple reason that it makes their cash flow easier to manage.
Leverage Unquestionably the most important and apparent difference between CFDs and Shares is the concept of leverage. By the very nature of the instrument CFDs are leveraged meaning that for a relatively small outlay you can obtain a relatively large exposure to a share. Typically the margin rate on most CFDs is around 10% this means that with a margin of $1,000 you could potentially gain $10,000 exposure to the price movement of a share. If you were to buy $10,000 worth of shares you would have to outlay the full amount, rather than the $1,000 required to open your CFD position, providing a more efficient use of capital and return on your initial investment.
It is important to be aware that although leverage can work in your favour, it can also work against you, this means that your profits and your losses are amplified however you can also potentially loose more than your account balance. With share trading on the other hand you cannot lose more than the amount paid, however you profit potential is also reduced.
Short Selling Equally CFDs and shares can be short sold although the process is often easier with CFDs for the simple reason that short sell transactions can be done online rather than over the telephone. The main reason why short selling shares directly is not a simple process is due to short sale reporting requirements which must be disclosed via tagging short trades executed on the exchange. Although CFD providers also have short sale disclosure requirements to meet they are not required to tag short trades for the simple reason that they often pre borrowed stock to cover any short sales, essentially this means that they have covered their clients short positions before the client even places the trade.
Costs of Trading A common myth in the market is that CFDs are cheaper to trade than shares, however this is not always the case. Financing plays an important part in CFD trading however most traders often forget about this. Without conducting any mathematical calculations as a rule of thumb an AUD $100,000 position will cost you around $25 per night in financing, on this basis if you hold a position open for at least 5 days this is the equivalent on paying $125 in brokerage or 12.5 basis points. Of course if you don’t have the capital it may be worth paying this however if the margin of the CFD is high you should think twice as CFD financing is not calculated on the borrowed amount but rather on the full notional value of the position as such it may be more economical to pay for your position outright and pay a higher upfront brokerage cost.
CFDs can of course be a cost efficient trading tool but this is only when positions are held open for a relatively short period of time however, share positions on the other hand can be held open for as long as you like with only the initial transaction cost payable, this is an important difference to keep in mind.
Despite having to pay financing costs one of the benefits of CFDs is that you are not required to pay any GST on your commission, although a relatively small amount it is worth considering the impact of GST on your trading costs if you are an active trader.
Unrealised Profits As CFDs are marked to market on a daily basis your profits or losses are also debited or credited from your account daily this is very different to trading shares where profits or losses are only realised at the time of sale. In this regard one of the benefits of CFDs is that you can utilise your unrealised profits without having to close your positions, naturally there is also a downside to this in that your losses are realised on a daily basis meaning that unlike share trading the free equity in your account may decline without you closing positions.
Only five differences have been touched upon in this article, in later articles we will cover some additional differences between shares and CFDs. In the meantime if you would like to find out more interesting information about share and CFD trading you can download our free CFD guide.
Australia has the highest per capita share ownership in the world so it’s not surprising that there are so many online traders. The recent explosion of the speculative resource sector has turned everyday people into professional investors, simply through trading shares online. Recently we have seen some phenomenal price moves never before seen in the micro cap resource sector of which many online CFD and share traders have taken advantage of.
Of course before you can get started online trading you must have the right tools for the job. Most online traders can get by with a one PC and monitor and an ADSL internet connection however the more serious online traders tend to use two monitors and have two internet connections to ensure that if one connection goes down they can still trade. Of Course having the right hardware does not mean much if you don’t have a broker account and a trading plan.
Most people new to online trading will choose a broker that they can do both the share and cfd trading thorough, there are relatively few of these so make sure that you do your homework and choose the one that can offer you a platform that suits your trading strategy.
Online trading is a lifestyle change and choosing a strategy that suits is important, generally there are three types of strategies short, medium and long term which each requiring a very different level of attention. Of course there is no point quitting you day job to start online trading CFDs and shares if it results in more work not less. Most people give online trading a go for a few months, starting with a relatively small capital outlay before they commit to trading full time.
To learn more about CFD trading you can download and read this free CFD Guide.
Nearly all of the CFD brokers in Australia offer CFDs over the shares making up the ASX top 300, the rationale behind this is straightforward, shares with a larger market capitalization are often far more liquid, however, many CFD brokers forget that we live in Australia, a country full of resources and of course also rich in resource stocks and simply don’t offer CFDs over the small and more speculative mining stocks.
Trading CFDs over speculative mining shares can be very rewarding if you select your stocks carefully. Before trading CFDs over speculative stocks you should perform some research on the company. Before selecting your stocks you should ensure that the company has great management and an excellent project. Needless to say if the copper price has gone up and you happen to be looking for exposure to stocks in this sector logically you wouldn’t select a CFD over a stock with gold assets, this is the reason selecting stocks within the relevant sector is also important. It is always imperative that you remember that trading CFDs over speculative stocks has its risks as these kinds of stocks can go up in price just as fast as they can come down.
So why a trade the CFD instead of buying the Shares outright?
The answer to this question is simple and can be summed up in a few words, unrealized profits and losses. Unlike stocks CFDs are marked to market every day meaning that the profits or losses are credited or deducted to and from your account every single trading day. The profits and losses from buying and selling stocks are dealt with very differently in that they're only realized once the stock is sold. Realizing profits and losses each day means that you are able to use your unrealized to profits to buy new positions without having to deposit further money into your trading account, needless to say the same goes for losses in that you'll have to deposit additional funds into your account if the trade moves against you.
It’s imperative that you note the majority of speculative stocks will have a higher margin prerequisite than shares in the ASX top 300, their margin requirement can easily be as high as 100% however the bulk are offered on a margin of 75%. One critical factor to think about here is whether or not your CFD provider will charge you financing on the full notional worth of the position, this could of course be a fairly large amount if the position was on a 100% margin, there are however some CFD providers that will only charge financing on the borrowed amount. It would be far more cost effective to pick a CFD company which will only charge you on the borrowed amount, if the CFD is on 100% margin this will likely deliver a large cost saving.
You can read more about trading CFDs on small cap mining stocks in this free CFD Guide.
WebIRESS is one of the most commonly used CFD and Share trading platforms in Australia, being adopted by some of the country's largest online brokers and leading CFD providers. In recent times webIRESS has undergone a makeover, with the latest version webIRESS Plus recently being launched.
WebIRESS Plus offers day traders and scalpers a number of significant advantages over it's predecessor, with the most noticeable being the speed of order execution, additional advanced order types and visual improvements. The significant improvements of webIRESS Plus make it the ideal CFD trading platform for day traders and scalpers looking to take advantage of rapid CFD price movements in the opening and closing phases of the market and during market volatility.
WebIRESS Plus is fast becoming the most popular CFD trading platform in the market due to the significant edge traders are able to gain as a result of the platforms dramatic speed improvement. In addition to the speed improvements in webIRESS Plus, there are now also a number of new order varieties including if-done orders, meaning CFD traders now have more control over their trades with the ability to set and forget orders.
Despite the significant advantages webIRESS Plus offers day traders and scalpers it is important to note that the speed advantages of webIRESS Plus are dependent on the internet connection being used. As an active trader it is always advisable to ensure that you have the fastest and most reliable internet connection possible, this may mean having an ADSL2 or cable broadband connection. Most active traders will always have two internet connections to ensure redundancy should one connection fail.
Active day traders often use the webIRESS Plus platform alongside an advanced charting package or market scanning tool. One of the more common and readily available charting packages is MetaStock another lesser known package is Spark. Spark is popular with more active day traders who monitor many CFDs at the same time and require detailed real-time information relating to price and volume changes which when combined with chart formations allow them to identify trading opportunities such as price and volume breakouts.
Of course a great trading platform, charting package and internet connection alone will not make anyone a successful trader. These are simply tools that will give you the edge over other traders in the market. The most important components of trading are information flow and discipline which when combined with a proper trading plan and tools will help you on your way to becoming a successful trader.
Currently webIRESS Plus is only available from IC Markets. You can download a webIRESS demo to see whether the platform suits your needs.
The webIRESS trading platform is one of the most common online share and CFD trading platforms in Australia. WebIRESS is used by most of the major online brokers including, Comsec, Etrade, and Bell Direct, however like all on-line trading platforms some traders might experience technical hiccups when first logging in. Some of the more common technical issues that you might encounter along with simple solutions are outlined below.
By far the most common technical issue encountered by new webIRESS users is what is known as the “ticking clock error” this is simply and endlessly ticking clock that appears in your browser along with the words “installing software please wait”, however, unfortunately for most the wait is endless. The “ticking clock error” is a common problem with a simple solution, this error occurs because Sun Java 1.4 or better has not been installed. The problem can often be resolved through a quick Java update, or new installation from the Sun Java website. In certain circumstances a recent version of Java may already be installed yet this error still occurs, often this is due to a popup blocker or antivirus software preventing your computer from accessing “webdf.iress.com.au“ and Port 6080 or 80, this can be corrected by allowing your firewall or antivirus program to access “*.iress.com.au” and port 6080 or 80. As a precautionary measure you should always clear your browsers cookies and temporary internet files before making any changes to ensure that your old settings are deleted.
Most webIRESS problems are related to Java or the security settings on your computer, however on occasions problems may arise as a result of your internet connection or LAN firewall settings. Testing connectivity to the webIRESS server is easy and should be done if you are unable to resolve you connection problems through the installation of Java or firewall and antivirus permission changes. A simple telnet connectivity test can be run by following the instructions below:
1. Go to “Start” > Run or open a DOS command window.
2. In the Run dialog box or at the DOS prompt, type: telnet web.iress.com.au 6080
3. Press Enter.
A Telnet window opens with the message “Connecting to web.iress.com.au…”
If the connection is successful, the Telnet message will disappear leaving a flashing block or cursor in the top left corner of the Telnet window.
If a connection cannot be established you should contact your ISP or network administrator as it is likely that ports 6080 or 80 are being blocked by your firewall.
These are some of the most common webIRESS problems, if after attempting the above solutions you are still unable to resolve your webIRESS connection problem you should contact your broker who will be able to conduct more advanced webIRESS troubleshooting.
You can download a free webIRESS Plus demo to see whether the new webIRESS Plus platform solves many of the technical issues that you may have experienced using webIRESS.
The webIRESS trading platform has been available as a share trading platform since 2000, it was only in late 2003 that the platform was adapted to suit CFD trading. The early adopters of the platform led its development and consequently forged a new wave of trader, the DMA CFD trader.
Before webIRESS the only DMA CFD trading platform available was complicated and clunky, the webIRESS trading platform set the new benchmark for DMA CFD trading amongst retail investors in Australia. Recently the DMA CFD offering on the webIRESS trading platform has been extended beyond DMA CFDs on Australian shares to incorporate CFDs over shares listed in the US and on several European exchanges along with forex and indices.
The webIRESS trading platform is web-based meaning it can be accessed from any PC with on-line access and can be utilized from behind a firewall in an office or from an internet cafe. The superior mobility of the platform has made it extremely popular amongst casual and professional traders.
It is not only the mobility of the platform and range of products offered that makes webIRESS so popular but it's also the platforms speed, functionality and ease of use. The webIRESS trading platform is one of the fastest DMA CFD trading platforms available, orders are executed in less than one tenth of a second, much quicker than the majority of other platforms. The platforms speed combined with its vast array of order types including trailing stop-loss orders and contingent orders make it the ideal platform for active traders.
The webIRESS trading platform has a number of great features including a market map and ability the see the entire market depth and course of sales of share CFDs, most platforms limit market depth to five levels and course of sales to the last one hundred trades. The market map is particularly useful as it offers a visible illustration of the shares that are moving within a particular sector and the market capitalization of the share relative to the sector. Traders regularly use the market map as a tool to recognize undervalued shares within a sector.
Since the CFDs traded on the webIRESS platform are DMA all orders are transmitted directly to the exchange order book of the stock over which the CFD is based. Being able to participate in the market of the underlying financial instrument means you can be a price maker and trade in the opening and closing phases. These are normally the phases of the market where a large amount of volume occurs, meaning more trading opportunities.
Before you start using the webIRESS platform you should download a demo that will allow you test many of its great features before you start trading for real.
To learn more about DMA CFD trading on the webIRESS platform you should download a free webIRESS demo.
CFD providers all have very different margin rates some offer margins from 1% others start at 5% but are margin rates really important in a well balanced CFD trading strategy?
CFD providers will vary their margin rates depending on the product over which the CFD is based, for example foreign exchange CFDs are typically offered at around 1% margin, the reason for this is simply because the foreign exchange market is the biggest and most liquid market in the world and the risk of currencies gapping is minimal. On the other hand the margin rates on share CFDs will typically vary between 5% to around 35%, the reason for higher share CFD margin rates is because shares tend to be less liquid than currencies. CFD providers will assess the risk of each share CFD individually and adjust the margin to cover the likelihood of the share gapping in volatile market conditions.
In determining the margin rates on share CFDs, CFD providers will generally look at liquidity of the stock, its market capitalisation and its historical price movements. Based on these three main criteria in addition to a few other factors a margin rate will be determined. It is important to note that some CFD providers may offer CFDs on 100% margin allowing them to provide a greater range of CFDs but providing no real benefit to the client.
Index CFDs offered by many CFD providers are a great way of gaining exposure to the overall market without having to buy futures contracts or a basket of shares. Index CFDs are typically offered on margin rates of 1% to 2%, the margin rate will vary depending on the index being traded.
So how do CFD margin rates affect you? Of course the lower the margin rate the better you are able to utilise the money in your CFD trading account thus your return on investment (RIO) will be greater, however as CFDs are leveraged instruments it’s not advisable to utilise the full amount of your deposit as margin, doing so would put you at risk of a margin call or even liquidation.
Typically with a good trading and risk management plan in place most CFD traders will allocate one third of their account balance to meet the margin requirements for their open positions, one third will be allocated to meet the margin requirements on intraday positions or opportunistic trades, the last one third remains on call to meet any additional margin requirements on open positions.
Yes, CFD margin rates are important however leverage is only one of the many tools in a CFD trader’s arsenal and should be used in conjunction with a proper risk management plan and well balanced portfolio. No matter the amount of leverage you are provided if you do not have a trading strategy in place you will not be a successful trader.
To learn more about CFD margin rates and how to develop a trading plan you can download our free CFD Guide.