Beginner: Questions about CFDs and bankroll management

[dkoleary]

Hi everyone.. first of all I'd like to note that I am a beginner. I am 20 and I have been looking into trading for a while. I've read a lot of stuff on FOREX and I've read stuff on stocks and options. In total, I've probably been studying various strategies and such for about a year or so on a consistent basis. So, although I'm not a complete newbie, I have never actually made a trade. So, in terms of experience, I am at ZERO.

anyway.. So.. I am a student, and being a student I don't have too much money to put towards such investments.

First of all I would like to ask about CFDs. I understand you can get leverage of upto 20:1, and they have cheaper brokerage fees than stocks. Do brokers (eg comsec) give margin to ANYONE or do you have to jump through some hoops before they approve? Would you recommend CFDs over stocks to a newbie with little bankroll?

Secondly I would like to ask about bankroll. Realistically, how much would I have to have as bankroll to get going in either stocks or CFDs to appropriately account for risk? Sometimes I hear to have 2% risk, sometimes 5%? so what would you recommend? also considering the brokerage fees which are quite expensive from a student's perspective. Should I save up $1000? $5000? $10,000? more?

Finally, a question about options. I understand that traders must become approved to make various trades in options. Would they ever approve an inexperienced newbie such as myself to trade them?? How much experience/education must one have for a broker to approve one for trading??

Thanks a lot everyone.. by answering my questions you are helping me develop my life plans for the near future.

DKO

 

[Trembling Hand]

Re: *Beginner* - Questions about CFDs and bankroll management

Buddy don't fall for the first trap in the get rich quick scam! Don't think with $1000 and 20:1 leverage you can trade bigger. It doesn't matter what amount of leverage you get from your dodgy brothers brokers. You still trade the same size even if you didn't have margin or have 100:1. And that is based on YOUR capital.

Margin don't matter.
Have a look here,
https://www.aussiestockforums.com/forums/showthread.php?t=10621

Second thing. CFDs are a trading instrument. If ya don't know how to or have proof that its possible ya shouldn't be using them.

Third thing if you are trading and starting off I would say absolutely no more than 1% per trade at risk.

Anyone will let you trade options but that doesn't mean you should.

 

[dkoleary]

Re: *Beginner* - Questions about CFDs and bankroll management

Buddy don't fall for the first trap in the get rich quick scam! Don't think with $1000 and 20:1 leverage you can trade bigger. It doesn't matter what amount of leverage you get from your dodgy brothers brokers. You still trade the same size even if you didn't have margin or have 100:1. And that is based on YOUR capital.

Margin don't matter.
Have a look here,
https://www.aussiestockforums.com/forums/showthread.php?t=10621

Second thing. CFDs are a trading instrument. If ya don't know how to or have proof that its possible ya shouldn't be using them.

Third thing if you are trading and starting off I would say absolutely no more than 1% per trade at risk.

Anyone will let you trade options but that doesn't mean you should.

Thanks Trembling Hand for your reply.

1. Yes, I have read about the margin stuff in the past and understand it thoroughly. I was just wondering if they allow margin loans for absolutely ANYONE.. ?

2. Well I understand how CFDs work - I just haven't traded them in the past, ever. Again just wondering if anyone has any tips and whether trading stocks would be better? So stocks or CFDs for a beginner who understands both but hasn't traded in either???

3. So, if at 1% risk per trade, that means I need 100 times the money in my bankroll cf. my trade size. How large would a typical trade size be? How do you incorporate brokerage fees into this calculation?

4. So, to confirm what you have said, any broker will let me trade options to the full extent?

 

[Trembling Hand]

Re: *Beginner* - Questions about CFDs and bankroll management

1. Yes, I have read about the margin stuff in the past and understand it thoroughly. I was just wondering if they allow margin loans for absolutely ANYONE.. ?

No a broker like commsec are giving you a loan. like any reputable bank they want security against that loan. CFD providers will let anyone in. They just want ya $$'s.

2. Well I understand how CFDs work - I just haven't traded them in the past, ever. Again just wondering if anyone has any tips and whether trading stocks would be better? So stocks or CFDs for a beginner who understands both but hasn't traded in either???

There is on one level no difference. You are trading the same thing. Where they differ is in max loss & costs. If ya cannot figure that out......

3. So, if at 1% risk per trade, that means I need 100 times the money in my bankroll cf. my trade size. How large would a typical trade size be? How do you incorporate brokerage fees into this calculation?

No mate you have a bit more research to go yet to get ya head around the basics. You are WAY off here. If you are risking 1% per trade that means you set your position size to lose only 1% of your capital if it hits your stop. So you divide your stop by 1% of capital to get your position size

Example.
$10,000 capital.
Stock purchased at $2.00
Stop at $1.75 Stop loss $0.25

1% of capital is $100. $100/$0.25 = 400

You can buy 400 shares

4. So, to confirm what you have said, any broker will let me trade options to the full extent?

To buy put/calls most brokers will in practise let anyone. to write and run more advanced strategies, no you need capital and experience. Just look at there PDS, its all there.

 

[sinner]

I recommend you open a demo trading account on a few different brokers. A good learning tool for the low low price of $0. Avoid the temptation to fund these accounts with real dollars.

Screen time will teach you a lot after a few months! But remember it's only paper trading, things tend to go against you in the beginning when you use your own cash!

Being undercapitalised will chew you out. 1% capital risk sounds right to me, it is easy to be impatient and jump in but not worth it. You will have to wait even longer to rebuild your capital after making a couple of newbie mistakes that blow your account.

Read, read, read.

 

[awg]

Hi everyone.. first of all I'd like to note that I am a beginner. I am 20 and I have been looking into trading for a while. I've read a lot of stuff on FOREX and I've read stuff on stocks and options. In total, I've probably been studying various strategies and such for about a year or so on a consistent basis. So, although I'm not a complete newbie, I have never actually made a trade. So, in terms of experience, I am at ZERO.

Hi dk,

by all means get some demo accounts and go for it.

unfortunately, unless you have a good strategy and the tools to implement that stategy, you will diminuish your account, due to spreads.

(although a simple strategy of going short on the 200 index would have been a good winner for the last 12 months)

I advise study some of the threads on this account from posters like TH, MRC etc.

Having said that, if you dont commence demo trading, you will never be able to progress to the next level

 

[dkoleary]

First of all, sorry TH, the risk thing i got it mixed up.

anyway, to the others.. Do I come off as impatient that much? I was just asking some questions that I wanted answered. I am not going to go trade live before I have at least a few months demo experience.. but probably want to trade demo seriously for a year. The questions I wanted answered were for the sake of knowledge and future planning.

Anyway.. thanks for the answers everyone and TH especially.

I have read all the basics on trading and stuff and I thought I would need some theory.. So I read an entire textbook of Intro Macroeconomics, and also a book on International Economic Indicators (CPI etc).

So now I want to study Modern Portfolio theory or something along the lines of that. Could any of you please recommend me a book??

What other theory should I study to have a firm grounding for trading? I wish to be able to trade for a very long time.

Thanks again everyone.

 

[skyQuake]

So now I want to study Modern Portfolio theory or something along the lines of that. Could any of you please recommend me a book??

Hahahaha, you have made my day

I think I still have that book sitting around, still fresh and unopened...
If CAPM and Modern Portfolio theory makes you money trading, why isn't the academic community stinking rich?
Load of rubbish imo.

I reckon you should read some stuff by Tate, basic and simply but good stuff.

But the most important part is learning money management. Find out what risk of ruin is. If you get money management sorted out, you'll survive long enough in the game to trade profitably.

 

[dkoleary]

Hahahaha, you have made my day

I think I still have that book sitting around, still fresh and unopened...
If CAPM and Modern Portfolio theory makes you money trading, why isn't the academic community stinking rich?
Load of rubbish imo.

I reckon you should read some stuff by Tate, basic and simply but good stuff.

But the most important part is learning money management. Find out what risk of ruin is. If you get money management sorted out, you'll survive long enough in the game to trade profitably.

Hmm okay? So how do you manage your portfolio then? Just by gut instinct? or do you have a system? I just need to learn how to do it.
Do you diversify your portfolio when you are selecting stock? at least to some extent to lower risk? of course you do right?
How do you know how much to diversify? How do you know which stocks to pick and how much of them you buy?

 

[IFocus]

Hmm okay? So how do you manage your portfolio then? Just by gut instinct? or do you have a system? I just need to learn how to do it.
Do you diversify your portfolio when you are selecting stock? at least to some extent to lower risk? of course you do right?
How do you know how much to diversify? How do you know which stocks to pick and how much of them you buy?

By your comments above are you talking investing i.e. super fund or trading.

If investing note that currently most sectors getting smashed diversifying in this climate wont work........very well.

Some time in the future good old value investing will come back in vogue go looking at our of favor stocks with single figure PE's

Note some of them will be there because they are about to fail you have to work out which.

At 20 you are well placed for the next wave of innervation like the dot com thingy. Its still to be invented but it will come.

Start thinking about future trends research company's well placed to take advantage deal with facts not your dreams.

There are many good investing threads and contributors on the forum

If trading find a strategy and test it to death, your brain / emotions/psychology/DNA must learn good behaviors. This is to help you through dealing with the conflicting feed back that the market brings affecting your future behaviors.

Cognitive dissonance read up about it http://en.wikipedia.org/wiki/Cognitive_dissonance apply it to fear and greed.

Its said 90 to 95% plus fail at trading by testing, sim etc before you place money in the market and even after you place money in the market plus sheer bloody mindlessness to keep going until you succeed you might get to join the light side.

Buy Nick Radges book Adaptive Analysis For Australian Stocks and as already suggested learn about money management


http://www.moneybags.com.au/default.asp?d=0&t=1&id=5017&c=0&a=74


Good luck

 

[dkoleary]

By your comments above are you talking investing i.e. super fund or trading.

If investing note that currently most sectors getting smashed diversifying in this climate wont work........very well.

Some time in the future good old value investing will come back in vogue go looking at our of favor stocks with single figure PE's

Note some of them will be there because they are about to fail you have to work out which.

At 20 you are well placed for the next wave of innervation like the dot com thingy. Its still to be invented but it will come.

Start thinking about future trends research company's well placed to take advantage deal with facts not your dreams.

There are many good investing threads and contributors on the forum

If trading find a strategy and test it to death, your brain / emotions/psychology/DNA must learn good behaviors. This is to help you through dealing with the conflicting feed back that the market brings affecting your future behaviors.

Cognitive dissonance read up about it http://en.wikipedia.org/wiki/Cognitive_dissonance apply it to fear and greed.

Its said 90 to 95% plus fail at trading by testing, sim etc before you place money in the market and even after you place money in the market plus sheer bloody mindlessness to keep going until you succeed you might get to join the light side.

Buy Nick Radges book Adaptive Analysis For Australian Stocks and as already suggested learn about money management


http://www.moneybags.com.au/default.asp?d=0&t=1&id=5017&c=0&a=74


Good luck

I just want to study portfolio management, even if it is inapplicable to the market at this time. Can you suggest any good reads on this topic? Thanks a lot.
By the way, I am going to the library to get out the Nick Radge book now. Any advice from anyone else here will be greatly appreciated. Thanks again.

 

[IFocus]

I just want to study portfolio management, even if it is inapplicable to the market at this time. Can you suggest any good reads on this topic? Thanks a lot.
By the way, I am going to the library to get out the Nick Radge book now. Any advice from anyone else here will be greatly appreciated. Thanks again.

I am not a true believer but hopefully others here are and can help

 

[skyQuake]

I just want to study portfolio management, even if it is inapplicable to the market at this time. Can you suggest any good reads on this topic? Thanks a lot.
By the way, I am going to the library to get out the Nick Radge book now. Any advice from anyone else here will be greatly appreciated. Thanks again.

You can find books such as 'modern portfolio theory' in most uni libraries (probably in the ref section).

It goes on mostly about required rate of return, tax shield debt ratios, and CAPM, WACC and ancient risk management methods.

Good luck.

 

[dkoleary]

By your comments above are you talking investing i.e. super fund or trading.

If investing note that currently most sectors getting smashed diversifying in this climate wont work........very well.

Some time in the future good old value investing will come back in vogue go looking at our of favor stocks with single figure PE's

Note some of them will be there because they are about to fail you have to work out which.

At 20 you are well placed for the next wave of innervation like the dot com thingy. Its still to be invented but it will come.

Start thinking about future trends research company's well placed to take advantage deal with facts not your dreams.

There are many good investing threads and contributors on the forum

If trading find a strategy and test it to death, your brain / emotions/psychology/DNA must learn good behaviors. This is to help you through dealing with the conflicting feed back that the market brings affecting your future behaviors.

Cognitive dissonance read up about it http://en.wikipedia.org/wiki/Cognitive_dissonance apply it to fear and greed.

Its said 90 to 95% plus fail at trading by testing, sim etc before you place money in the market and even after you place money in the market plus sheer bloody mindlessness to keep going until you succeed you might get to join the light side.

Buy Nick Radges book Adaptive Analysis For Australian Stocks and as already suggested learn about money management


http://www.moneybags.com.au/default.asp?d=0&t=1&id=5017&c=0&a=74


Good luck

You can find books such as 'modern portfolio theory' in most uni libraries (probably in the ref section).

It goes on mostly about required rate of return, tax shield debt ratios, and CAPM, WACC and ancient risk management methods.

Good luck.

Would you also say that MPT is irrelevant to live trading? How should I manage my portfolio? Just hedge every trade? How should I go about diversifying?

Thanks

- Also I started a new thread for portfolio management topic: https://www.aussiestockforums.com/forums/showthread.php?t=14243