Articles of Interest

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.

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.

CFD trading is a relatively new concept to most traders and investors in Australia, which is understandable given the mechanics of CFDs are different to traditional share trading. Having an advisor or trading mentor who is able to explain the concept of CFDs and assist you to identify trading opportunities is often a relatively safe way for new CFD traders to gain exposure to financial markets.

There are many stockbrokers and financial advisors in Australia who are able to help traders and investors looking to enter the stock market, however very few have an in-depth experience and understanding of CFDs and how they can be used not only as a hedging tool over a share portfolio but also as a great way to gain exposure to global stocks, commodities, indices and forex pairs.

Some CFD providers are able to provide you with basic CFD trading advice and education however many of them will not provide you with CFD trading recommendations. There are however some CFD providers who are able to provide you with advice and trading recommendations, it is these providers that often also specialise in other aspects of money management including financial planning, corporate advisory and funds management. Dealing with a CFD provider that does not solely specialise in CFD trading is often a good idea for novice traders looking for some assistance in managing their trading portfolio and understanding the risks and benefits CFDs.

Dealing with CFD providers who offer an extensive range of products and services aside from solely offering an online trading platform has a number of advantages in that often you will be assigned a personal account manager with whom you can liaise on a daily basis and ask questions. If you require additional services such as being contacted in the event of a trading idea you can also elect this, however you may be charged a higher commission rate when using this service. Often added benefits such as being able to participate in highly sought after placements and IPO’s will also be provided. 

In many cases getting CFD trading advice from your stock broker or CFD provider will cost more than trading for yourself online, however the added commission charges are relatively insignificant when you consider the benefits and are far cheaper than the looses that many novice traders incur when placing trades without a well thought out trading plan or strategy.

Before trading CFDs either online yourself or with a CFD provider who is able to provide you with CFD trading advice it is essential that you understand not only the benefits of CFD trading but also the risks. Often newbie CFD traders fail to understand that although the leverage associated with CFD trading can result in gains it can also result in large losses, this is why having an understanding of risk management is important.

To learn more about CFD trading it is advisable that you read 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.

WebIRESS is one of the most popular trading platforms for DMA CFDs in Australia and is offered by most of the major on-line brokers. WebIRESS is popular in the share trading community as well as with DMA CFD traders. Traders using WebIRESS are able to trade both shares and DMA CFDs using the same WebIRESS login.

Most CFD and on-line share brokers in Australia are able to offer a WebIRESS demo for prospective traders to download any try prior to opening a real trading account. It is important to note that WebIRESS demo accounts do not allow you to place orders or view your portfolio, the reason for this is that WebIRESS must be connected to an IRESS Order System (IOS) in order to function and place orders, demo accounts are usually not connected to an IOS.

As WebIRESS is a web-based trading platform demo accounts are accessed on-line utilising your web browser, however it is important to note that WebIRESS requires Java to be installed on your PC in order to operate correctly. When first installing WebIRESS you will be prompted to install the most recent version of Java. It is critical that the most recent version be installed as your webIRESS may not function correctly on older versions of Java.

Upon first glance your WebIRESS demo will appear quite basic with the workspace layout being divided into four frames, however when switching to the multiple document interface (MDI) mode you will quickly realise the power of the WebIRESS desktop interface. In the MDI mode you are able to freely move windows across multiple monitors and easily create customisable workspace tabs.

When fist logging into your WebIRESS demo you will find that it will most likely have delayed market prices and only one level of depth, this is normal. After opening a real trading account you will be given the option to subscribe to live data at a cost of around $38.50 for ASX data, upon subscription you will have full access to live market data, course of sales and full market depth.

One of the great features of webIRESS is the market map. The market map is essentially a heat map of the market providing a visual representation of the market movement of stocks in each of the sectors in real-time. The size of the squares in the map represent the market capitalisation of each of the stocks and the shades of red or green provide an illustration of how much the stock has moved up or down. The market map is great for traders looking for a quick snapshot of the movement of stocks in relation to their sector and the overall market.

After you have spent some time navigating the menu items, creating watch lists and customising a layout it is advisable to explore the charting functionality of your WebIRESS demo and become familiar with the chart indicators and layouts and how you can adapt them to suit your trading strategies.

Once you decide whether WebIRESS is the right trading platform it is important to factor its cost into your trading budget, most brokers and CFD providers offer the WebIRESS platform at a cost of somewhere between $55 to $88. When combined with ASX data fees your total monthly cost will come to around $95 to $125. If you are a frequent trader you will likely find that your broker or CFD provider will cover the WebIRESS cost on your behalf, however if you are not a frequent trader it is important for you to determine whether the added features available on the WebIRESS platform are worth paying for as there are many free CFD platforms available that offer similar features.

It is advisable that you download a WebIRESS demo in order to become familiar with its many features and to determine whether trading CFDs on the WebIRESS platform suits your trading strategy. 

If you would like to learn more about DMA CFDs you can download our free CFD Guide.  

There are two main types of CFDs, direct market access (DMA) and market made (MM). The most popular type is the market made variety. The reason for the popularity of market made CFDs is simply because CFD providers offering this type of CFD are also able to offer CFDs over indices and forex pairs.  DMA CFDs are typically more common with traders that are more familiar with share trading for the simple reason that DMA CFDs allow traders to participate in the opening and closing phases of the market and also the order book of the underlying security over which the DMA CFD is based. Both varieties of CFD have their place amongst traders and investors and it is important that you choose the type that suits your trading style.

It is not uncommon for day traders and scalpers to utilise DMA CFDs rather than the market made variety as their orders flow directly onto the exchange and there is no market maker intervention meaning that order execution speed is often quicker with no risk of being re-quoted.  DMA CFDs are also favoured because day traders are able to participate and influence the opening and closing match price. The opening and closing phases of the market are the most liquid and of course liquidly is essential in any effective day trading strategy.

Often day traders also have CFD trading accounts with CFD providers offering the market made variety. The reason for this is because day traders like to monitor the movement of the cash indices, in addition to being able to trade them. Market made index CFDs are a cheap simple alternative to trading the actual futures contract which generally requires a higher upfront margin.

Some CFD providers offer both DMA and market made CFD from the same platform, this is the preferred solution for active day traders as it means that their DMA share CFD positions can be cross margined against their indice and forex CFD positions. Having both DMA and market made CFDs in one account also saves allot of paperwork as only one account needs to be managed, making the preparation of tax returns much easier.

Day traders often use both DMA and market made CFDs in their trading strategy, CFD providers who only offer market made CFDs refer to these traders as snipers as their strategy revolves around taking advantage of price discrepancies between DMA and market made CFDs. Such discrepancies often occur during the opening and closing phases of the market as it is during these phases that there are significant price changes, some of which may not be accurately reflected in the price of the market made CFD.  These pricing inaccuracies can result in arbitrage opportunities for shrewd traders.

It is important to note that each and every trader has their own trading style, some styles are better suited to DMA CFDs and others to the market made variety. Before making the selection between DMA or market made CFDs you should consider your trading style and determine whether the speed and accuracy of DMA CFDs or the versatility of the market made variety is better suited to you.

To find out more about trading CFDs you should download a copy of your free CFD Guide.

Incorporating a proper risk management plan into you CFD trading strategy is the single most important aspect of CFD trading. Risk management involves determining the amount of money that you wish to allocate to each trade to ensure that you are able to continue trading should you sustain a loss on the position.
 
Trading CFDs without a proper risk management strategy can expose you to unnecessary risk. For example, if you allocate a large portion of your trading capital to a trade without a proper risk management strategy, you put all of your trading capital at risk meaning that if you sustain a loss you will no longer be in a position to trade. Losing your entire capital base can force you out of the market and you will not even have the opportunity to recoup your losses.
 
The most common form of risk management is position sizing this is also known as the fixed dollar trade size model. In this example an equal amount of capital is used for each trade.

For example, if you have $100,000 to invest, you need to figure out how much to put into the trade. To figure this out you would simply divide $100,000 by the price of the CFD. If the last traded price of the CFD was $8.50 you would divide this by $100,000 to determine the amount of CFDs you can buy, in this case the number would be 11,764. 

In order to determine the amount of risk involved in the trade you will have to work out how much you can afford to lose if the CFD moves against you and set your stop loss at this point. This is also known as the stop loss distance, which is the distance between the entry and stop loss price.

For example, if your stop loss is $8.00 and entry price was $8.50, this means that your stop loss distance would be $0.50. If you have 10,000 CFDs your risk would be 10,000 multiplied by $0.50 or $5,000. In this case your risk would be $5000, which equates to the amount that you could lose should the trade move against you and you get stopped out. 

It is also important to factor in the cost of commission and any financing charges that you may have been incurred from holding the position overnight.

In the fixed dollar trade size model the number of CFDs that that you buy and sell each time will not always be the same, this is because the stop loss size will vary depending on the risk appetite that you have on the trade.

Another form of risk management is compounding, this means that as your account balance increases, you are able to open larger positions.

For example, if you have a starting balance of $100,000 and you have determined that you can afford to have 10 trades open at any given time. As your account balance grows, you will be able to take on larger trades. This strategy can be used up to a point when your drawdown gets too big for your liking and risk appetite.

It is also important to note that if you are trading a CFD that has liquidity issues, you may get to a point where your trade sizes are too large.

To understand more about CFD trading and how you can manage your risk you can download our free CFD Guide.

Before you start trading Contracts for difference it is important to obtain a few tips from the professionals to make sure that you do not make many of the costly mistakes that newbie traders make. Below are three trading pointers which will help you in your CFD trading success.

1. Manage your Positions
Repeatedly new traders spend a significant amount of time selecting, planning and executing new positions, however they regularly make the mistake of exiting these trades with much less thought. This is unfortunate as it is the exit which will determine whether a trade has been profitable or not.

It is human nature to take profits hastily while the concern of incurring a loss will see the same trader leaving poorly performing positions open in the hope that prices will move in the correct direction and reduce losses or even turn them into profitable trades.

Numerous new traders forget about the old saying “Let your profits run and cut your losses short”. As the proverb states if you have a profitable position, it is best to allow that trade to realize its full potential, as opposed to closing it out at the very first sign of a small return. On the other hand, if you happen to hold a position that is moving against you, it is best to move quickly to exit that position, before the loss becomes too great.

If you're managing your trades properly, your average winning trade should be significantly larger than your average losing trade. Once you have the discipline to buy and sell in this way, you should be able to achieve overall profitability even when only half of your trades are winners. A lot of traders make the mistake of not closing poorly performing positions fast enough. One tool that makes this less complicated is a stop-loss order.

After you have determined a price level that corresponds with the amount of risk that you are prepared to take on a particular trade, a stop-loss order can be placed at this level to automatically close out the trade. This removes the human aspect from the exit, reducing the risk that the emotion of hope will interfere with rational decision making.

It is important to understand that a stop-loss order simply provides a trigger point for the execution of an order. If a sell stop has been placed on a long position, the stop-loss will be activated if the price trades at or beneath the nominated stop level. Occasionally, this may lead to trades being executed a price that is less favorable than the nominated stop-loss price. This is known as slippage.

2. Understand the instrument that you're trading
Being over-the-counter products, there are various differences in the contract specifications of CFDs. If you are thinking of trading these products, it is critical to know what these specifications are.

You must also be aware of the influence that foreign exchange fluctuations might have on your holdings. If the base currency of the CFD rises against the base currency of your account your profits could be eroded by any currency fluctuation or your losses might be made worse.

Most CFD traders trade CFDs based on stocks listed in their home country. The simple reason for this is that traders are more comfortable trading CFDs that they're familiar with. Most traders also benefit from the convenience of trading their home market as it isn't practical to sit up for half the night to trade a Contract for difference over a share listed on an exchange in another part of the world?

In lots of cases it is much better to stick with CFDs based on equities listed on exchanges that you're familiar with as opposed to trading Contracts for difference based on stocks listed on markets you don't fully understand.

3. Use the correct order types
You should treat trading as a serious business. As such, you must take some time to make sure that you thoroughly understand the tools of your business. Many CFD traders miss chances or have been stopped up out of trades at the wrong time just because they placed the wrong kind of order.
                   
At the very least, be certain to become familiar with the following order types:

Market order: This kind of order is utilized to execute a trade at the present market price.

Stop-order: This order type is utilized to exit a trade at a specific price. Stop-orders are placed at a level that's worse than prices presently available in the market. On a long position, the stop-loss order to sell would be located below the present market price. Conversely, on a short position, the stop-loss order to buy would be placed at a level greater than present market prices.

Limit order: A limit order is used to exit a trade. Limit orders are placed at a level that is better than the present market price. When seeking to lock-in profits on an open long position, a limit order to sell would be placed at a level greater than current market prices. If seeking to lock-in profits on a short position, a limit order to buy would be placed at a level underneath current market prices.

You must always understand that as Contracts for difference are leveraged and that buying and selling them can be risky. However if used correctly Contracts for difference will become a valuable tool within your trading arsenal.

To find out more about CFDs you can download our complimentary CFD Guide.

Many amateur CFD traders start trading the hard way without learning from experienced traders who have made all the expensive errors traders make on their path to success. To help you understand the most common errors made by traders and to prevent you from making the same errors with your own money we've outlined a few common mistakes below.

1. Trading for the incorrect reasons
Most people will commence trading with the intention of making a return from day one. However, there are a few people who trade for entertainment. If you are serious about making a profit, it's important that you treat your trading like a business. Those who invest for entertainment will be lucky if they make money, in reality more often than not they will lose.

2. Over-Trading
You should avoid the temptation to over-trade. Over trading is really a risk for those traders that are not following a technique, choosing to sit down on the sidelines until a clear trend emerges is in itself a legitimate strategy. You should avoid the mistake of fully leveraging your positions simply because you've got free equity available. It is also important to make sure that you don't invest with money that you cannot afford to lose.

3. Psychological and Emotional Mistakes
Developing the mind-set that you need to get each trade right is often a dangerous mistake to make if you cannot accept the very fact that you're going to make errors. You may find it hard to close out of a losing position, instead your mind will find ways to persuade itself that the trade will swing around and happen to become profitable. There is a danger that subconsciously you will become blind to evidence that suggests you are wrong.

You have to recognize that you will not get each trade correct and that you don’t need to get each trade correct, this will enable you to deal with your trades effectively. Being in the wrong is something that we frequently feel bad about. We're taught through positive reinforcement that we should feel better about being correct. This repeatedly presents problems when trading.

Losing trades may cause emotional distress and prevent you from correctly analysing the market. This can present a risk that you'll start over-trading in order to make back losses or to “get even” with the market. On the flip-side, winning trades can produce feelings of excitement and invincibility. If you make the error of permitting this emotion to take hold, you may find yourself taking unnecessary risk or making stupid errors through carelessness.

You should aim to keep your trading related emotions under control. Wise traders will focus on the downside risk potential of each trade and will make sure that this is within their pre-defined parameters outlined in their trading strategy.

4. Not understanding the suitability of Contracts for difference
Trading CFDs has enhanced the trading possibilities for a great many retail traders. CFDs are an ideal product for traders with a short-term time horizon along with a desire to increase their market exposure on a small amount of capital.

It is important to remember that contracts for difference are not always suitable for long-term traders due to financing expenses which can build up over time. In addition traders who don't supervise their open positions won't find CFDs suitable. You always need to ensure that the amount of money that you allocate to your trading account is an amount that you would be able to afford to loose.

Before you start trading Contracts for difference you ought to be familiar with the negative aspects linked to the product. As with all geared financial products, the risks are going to be higher if you don’t take the time to understand the product.

For traders that understand how CFDs work and learn to minimize their risks, there can be significant benefits from CFD trading. Through the use of leverage plus the convenience of trading, retail traders now have greater opportunities than they have ever had before.

If you would like to learn more about CFD trading and how to develop a trading plan you can download and read our free CFD Guide.

Direct Market Access CFDs or DMA CFDs are one of the most transparent types of CFDs available. DMA CFDs have the advantage of allowing participation in the underlying market of the stock over which the CFD is quoted. DMA CFDs are relatively new and have only become popular in Australia over the last few years however, continue to become popular as traders realize the transparency offered by this type of CFD. 
 
DMA CFDs have significant advantages over the more traditional over-the-counter (OTC) variety in that they allow the trader to participate in the opening and closing phases of the market. Being able to trade in these phases of the market offer significant advantages to traders as they are can receive the opening or closing price of the day. Traditional over-the-counter CFDs do not allow the trader to participate in these phases of the market thus preventing the trader from being able to receive some of the best prices of the trading day.

Despite the drawback of not being able to participate in the opening and closing phase of the market, over-the-counter CFDs do have the advantage of allowing the trader to buy or sell volumes that may not be available in the underlying market during normal trading hours.

DMA CFDs have become popular amongst day traders and scalpers. The main reason for their popularity is because DMA CFD providers allow CFD trades to flow onto the underlying market in the stock on which the CFD is based allowing active traders to take advantage of relatively small price movements. Using DMA CFDs also allows day traders to get set at the opening price at the start of the day and clear their positions during the closing price during the closing match phase.

One of the disadvantages of DMA CFDs is that generally DMA CFD providers do not offer guaranteed stop loss orders. Guaranteed stop loss orders have the benefit of allowing the trader to manage their downside risk. Slippage often occurs when using stop-loss orders, guaranteed stop-loss orders remove this risk altogether.

It is important to be aware that prior to opening a CFD account with you should be aware that when trading DMA CFDs you will required to deposit a higher initial margin amount than the over-the-counter (OTC) variety. In addition to higher margins many DMA CFD providers will not able to offer you CFDs over indices and foreign exchange contracts due to these contracts being over-the-counter in their very nature.

There are relatively few platforms available that offer DMA CFDs, one of the most common platforms in the Australian market is webIRESS. WebIRESS offers the speed and reliability day traders and scalpers need in addition to a variety of different order types such as trailing stop-loss orders. Another popular platform is ProDeal, ProDeal offers all of the advantages webIRESS offers with the additional benefit of being able to trade over-the-counter CFDs from the same platform allowing traders to trade CFDs on indices and forex from their DMA CFD account.

It is important that before making the commitment to start trading DMA CFDs that you understand the risks associated with the product. Like all leveraged products trading CFDs can offer substantial rewards however there are also risks involved that if not managed correctly can lead to losses greater than the trader’s initial deposit.

Before choosing a DMA CFD provider you should ensure to trial their demo platform and read their Product Disclosure Statement which outlines in detail the fees and charges, provides trading examples, and outlines the types of CFDs offered along with the risks and benefits of trading CFDs. You should ensure that the CFD provider you choose is able to offer you the platform and products that suit your trading strategy.

To discover more helpful information about CFDs you can download our free CFD Guide.