Articles of Interest

Day traders and scalpers are always looking to gain an edge in the market that will give them a real trading advantage, however most traders often go searching for faster PC's, internet connections or a better charting package, many often overlook the fundamental basics like the trading platform that they are using or the broker that they are dealing with.
 
The most important element in any DMA CFD traders arsenal is their trading platform as this is their connection to the market. May DMA CFD day traders and scalpers assume that their broker has the fastest market connectivity and trading engine behind their platform, however unfortunately in reality there are some brokers that do not have the correct infrastructure to enable sub-second order execution into global exchanges.

As a CFD day trader or scalper it is critical to ensure that your DMA CFD broker has the fastest market connectivity possible. In many cases DMA CFD providers outsource their execution services to their prime broker, although this allows the DMA CFD provider to achieve cost efficiencies it does not always help you as a day trader. In-fact outsourcing CFD execution to a global investment bank may mean that your trades are routed through one of the main regional hubs being London, New York or Hong Kong before they reach the market and appear as a filled order on your trading platform. Some global investment banks do however have localised infrastructure meaning that your orders are not sent around the world before they reach the exchange. When choosing a DMA CFD provider it is important that you ask them whether their orders are routed locally or through their prime brokers global infrastructure as this will have a significant effect on the speed of your order execution.

Aside from good market connectivity the other core element is the trading platform that you use. There are many trading platforms available to retail DMA CFD day traders and scalpers, however by far the most popular is the webIRESS platform. Many CFD providers are able to offer you the webIRESS platform however there are very few providers that are able to offer webIRESS plus. WebIRESS plus is faster than conventional webIRESS and offers split second order execution. 

As a DMA CFD day trader is important to choose a CFD provider that can give you split second order execution allowing you to acheive a CFD trading edge. Of course before you start trading you should evaluate the pro's and con's of each CFD provider and download a few trading platforms to ensure that the CFD provider you select does in fact give you an edge in the market.

To find out more about trading CFDs you should download this free CFD Guide.

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 many good CFD brokers in Australia, their active marketing and promotions make it difficult to chose, some have advantages over the others but more often than not it is their fancy marketing makes you confident in your choice of provider.

When you sweep away all of the fog and evaluate each of the best CFD brokers on a few key metrics you will soon discover which provider genuinely suits your trading needs.

There are as few key metrics that you should judge your CFD broker on, these are:

• DMA or Market Made
• Web based or Downloadable trading platform
• Product Range

DMA or Market Made
It is important to ensure that you understand the differences between DMA and Market Made CFDs and the pro’s and con’s of each. DMA CFDs offer a few advantages in that they allow you to trade the opening and close phase of the market in addition to allowing you to participate in the market depth. DMA CFD are popular with scalpers and day traders but are not so popular with traders needing exposure to indices or currencies and wanting to place guaranteed stop loss orders, this is where Market Made CFDs have significant advantages over their DMA cousins.

Web Based or Downloadable trading platform
It can be quite confusing when choosing a CFD brokers platform as each platform has benefits and drawbacks. It is important to consider where you will be trading from as this will decide whether you use a web based or downloadable platform. If you intend to trade from work it would be better to choose a web based trading platform for the simple reason that web based platforms do not require a download, this means that they cannot be blocked by the firewall in an office, however, web based platforms come with some downside also in that they tend to lack much of the advanced charting functionality of downloadable platforms. Downloadable platforms a more suitable for home use as they offer significantly more advanced charts and order types in addition to added features such as back testing and customisable multi screen layouts. Professional day-traders and scalpers often prefer using downloadable platforms whereas casual traders tend to choose web based platforms.   

Product Range
It is important that when choosing the best CFD broker for your needs you should assess the products that they offer to ensure that can provide a range of CFDs that suit your trading plan. Some CFD brokers only offer CFDs on Australian Shares however others offer CFDs over stocks, indices and forex. If your trading plan covers all of these products you should be sure to choose a provider that does not restrict you to Australian share CFDs only.

Of course when choosing the best CFD broker for your trading needs you will need to asses all of the metrics above and make your determination based on your trading strategy. It is also advisable to download a few demo trading platforms available in the market, this will help you better understand whether the platform is suitable for your needs and trading style.

To understand CFDs in more detail and to learn how to develop a trading plan you can download our free CFD Guide.

The webIRESS plus trading platform is the newest product to be released by Australian financial markets software giant, IRESS market technology. WebIRESS plus allows retail online traders the ability to take full advantage of the flexibility and speed offered by IOS plus from the comfort of their home or office.

Unlike the traditional IOS classic powering conventional webIRESS, IOS plus provides users with the flexibility of being able to utilize advanced web services technology in their automated trading strategies. webIRESS plus users are now able to build trading algorithms without having to install and run the IRESS desktop application saving time and money. Being server based the web services technology also provides significant redundancy advantages.

IOS plus has significant speed advantages over predecessor with order transmission speeds being improved by a whopping 150%, this means webIRESS plus users will be able to transmit orders to the market at speeds not previously available to retail clients in Australia. Faster execution translates into more trading opportunities. 

The old webIRESS has also had a makeover with webIRESS plus utilising the lasted in Java technology giving the front end interface a smooth visual appearance reminiscent of windows 7. Combined with an improved visual appearance webIRESS plus offers users advanced order types including being able to create multi legged contingent orders. 

Currently webIRESS plus is only being used for CFD trading, this is primarily because of the low latency order transmission times demanded by CFD traders. It is expected that webIRESS will shortly be adapted for online share and options trading also.

At present webIRESS plus is only being offered by CFD provider International Capital Markets (IC Markets), this is primarily due to customer demand for low latency CFD trading and the company’s drive to stay at the forefront of trading technology. It is expected that other CFD providers currently offering webIRESS will soon recognise the significant benefits of webIRESS plus add this revolutionary trading platform to their arsenal.

When choosing a CFD provider you should consider the platform being offered whether it will give you an edge in your trading. If you are a day trader or scalper you should definitely consider the webIRESS plus as it will give you a significant speed advantage over all other platforms in the market allowing you to take advantage of fast moving markets and rapid match price changes in the opening and closing market phases. IRESS has once again set a new benchmark for high speed low latency trading in Australia.

To find out more about CFD trading on the webIRESS plus platform you can download our free 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 or DMA is the often used to describe a variety of CFDs that have become popular in the Australia market, these are affectionately known as DMA CFDs. With DMA CFDs your trade is passed directly through to the underlying share market with no dealer or market maker intervention, this means that orders are executed at the true market price and in a timely manner with no re-quotes. Trading DMA CFDs is much like trading shares online.

DMA CFDs provide complete order transparency. Traders are also able to participate in the market depth of the underlying security on which the CFD is based by joining a bid or offer queue, they are also able to participate in the open and closing auction phases of the market. DMA CFDs provide all of the benefits of trading shares with the additional leverage that CFDs offer.

Trading DMA CFDs is very similar to trading shares, traders are able to hit the bid or offer or join the buy or sell queue. DMA CFD traders have significant advantages over traders using market made CFDs in that they have the potential to enter and exit trades at superior prices.

When trading DMA CFDs you will be required to subscribe to exchange data, the cost of data varies from exchange to exchange. Once subscribed you will have access to real time prices and market depth allowing you to see the number of buyers and sellers at each different price level and participate in order queues allowing partial fills and superior execution.

One disadvantage of DMA CFDs is that guaranteed stop losses are not offered, typically DMA CFDs traders use options to manage their downside risk however these can be overly complicated for the novice trader.  

When trading DMA CFDs traders have the ability to become price makers meaning that when an order is placed it is transmitted to the real market and can have an effect on the price of the stock over which the CFD is based.

Trading CFDs using a Direct Market Access (DMA) model is best suited for frequent traders that trade on an intraday basis. Frequent traders will find that DMA CFDs will enable them to trade freely without dealer intervention and obtain better prices when buying and selling. DMA CFDs are also suited to active day traders and scalpers who are looking to profit from small price changes quickly.

There are a number of CFD platforms that you can trade DMA share CFDs on, the two most common platforms in Australia are webIRESS and ProDeal. Both platforms allow traders to participate in the market depth of the DMA CFD which they are trading. The webIRESS platform is also very popular within the share trading community, mainly because of the variety of order types on offer, whereas ProDeal is very popular amongst CFD traders, this is because of the broad range of CFD on offer and its advanced charting functionality.

It is important to note that before starting to trade DMA CFDs you consider whether this type of CFD suits your trading style, choosing the wrong CFD type will have an effect on the success of your trading strategy.

You can find out more about DMA CFDs by downloading our free CFD Guide.

Compared to short selling traditional shares, CFDs are a revolution for traders who want to make money in a falling market. Short selling with a traditional stock broker is a complicated and costly process, starting with the brokerage. Generally it is charged at full-service rates to short sell. Traders can spend around $75 a trade to enter a short position in a traditional stock. Short selling shares also attracts a higher margin rate. Generally it requires 25% of the value of the underlying position to go short compared to around 5% with a CFD provider. Short selling with a stockbroker is also dependent on the availability of stocks to borrow. If the stock is not available to short sell the position cannot be taken. If the company decides to recall the stock at any time, then the short position is closed out. Short selling a traditional share is also bound by the downtick rule. This means a trade cannot be taken in a stock unless it is the result of an up-tick in the price activity. In a rapidly falling market going short using CFDs has a big advantage, as short selling traditional shares is prohibited.  

There is a famous saying, ‘markets go up by the stairs and down by the escalator’. This means a rise in prices is likely to take longer than the equivalent size of losses. However a market in a downtrend is often subject to sharp rallies also known as the dead cat bounce. A dead cat bounce in a bear market is usually followed by a resumption of the losses. The bear market rally or dead cat bounce can cause, or can be the result of short covering. This is known as a short squeeze and occurs when short traders close out their positions by buying.

All serious traders must be prepared to go short when the market signals the uptrend is over. Every market will enter a downtrend. No stock will rally always and forever, and every bull market is followed by a bear market. A general bear market will provide abundant shorting opportunities. In a bull market there are fewer shorting opportunities, therefore a trader must be more cautious about taking short positions. As a general rule the safest shorting opportunities in a bull market are on the worst performing stocks in the worst performing sector. Traders earn interest from holding a short position. This is a consideration if a trader wants to have a short position for the long term. For example, long term corrections on stocks like Telstra, AMP, Lend Lease provide traders with extra income on top of the profits as a result of the falling price.

Example – short position in Telstra Corporation (TLS)
On 24 June 2010 you believes TLS is in a downtrend and take a short position in TLS share CFDs. You decide to hold the position using a 50c trailing stop loss.

Opening the position

Telstra Corporation is quoted by your CFD provider at $3.13 bid.

You sell 10,000 Telstra share CFDs at $3.13. The total value of the trade is:
$3.13 x 10,000 = $31,300

The margin required to open the position is 10% of the total value of the trade and is calculated as follows:
$31,300 x 10% = $3130.00
    
Whist short you will earn interest on the trade at a rate of 3.24% per day calculated as follows:
$31,300 x 3.25% / 365 = $2.78 per day*
    
*This will vary according to the daily closing price of TLS

Closing the position

Telstra Corporation makes lows of $2.25 in August. A stop is then moved down 50c above this level at $2.75. The market does not go any lower before reaching the level of $2.20 on 24 August.

You now buy 10,000 TLS share CFDs at $2.20. Profit is calculated as:
($3.13 – $2.20) x 10,000 = $9,300

The position earns interest of $2.78 per day for two months:
$2.78 x 60days = $166.80 approx

Your total profit on the trade is:  
$9,300 + $166.80 = $9,466.80 approx*

*should the position have moved against you, you would have incurred a loss on the trade.

You can find out more about how you can use CFDs to short sell in our free CFD Guide.