Anyone for CFDs?

King_Weasel

I keep being bombarded by brokers trying to persuade me to invest in CFDs (Contracts for Difference).

These enable you to profit from share price falls as well as rises, and avoid stamp duty. They also enable you to lose more that you invested (through the process known as "gearing") but you can limit the loss by putting stop-loss trades in place so that you automatically sell once the paper loss reaches the specified limit.

I know you shouldn't invest in areas you don't understand, but often you shouldn't invest in areas you DO understand (like buy-to-let or fine wine).

Does anyone have experience of CFDs? Do any £ advisors here have a view?

Informed responses welcomed.

JohnRo

Most online CFD brokers will have a margin requirement on each trade. When the trade goes against you it will eat into the margin until the point where a margin call is triggered and applied, reducing the balance accordingly.

I've read professionals only risk about 1 or 2% of their account at a time.

Retail customers have all the cards stacked against them, trade on huge margin risks relative to their total pot, then clip winners far too early and let losses run far too long, waiting for a recovery that never comes before a margin call triggers, the account is hammered and the excitement and enthusiasm turns to frustration and disillusion.

You won't learn a damned thing about the markets but you'll learn an awful lot about your attitudes to risk, gains and invariably losses.