CFDs versus Share Codes
Q “Are the CFD share symbols codes the same as for normal shares? How do you distinguish between CFD and normal share?”
A The CFD is just the derivative of the share...
So you're not buying a share, you're buying the exposure with the use of gearing...
What do I so with the rest of my money?
Q “My situation is that I have R250 000 to trade with and use the 2% rule so it is R5 000 for each trade. The question is what do you suggest I do with the excess funds that are not tied into trades? Leave it in the account and only earn around 5% interest or can you suggest something else?” T.W
A This question is the one my dad had for me when I was around 19 years of age.
At the time I was still living with him, and he would ask how my trading was going. I told him I have R100,000 in my portfolio and only R2,500 invested in two trades. He asked me, what are you doing with the rest, it's an opportunity cost by just leaving your money to do nothing.
I then explained to him a simple concept. I said when you have a business, and you have R1 million in the business...
Do you take out money and invest in property, alternative investments etc? He said no, you keep it in the business to grow and expand.
I said well the same goes with trading. With that R100,000 I am only willing to risk R2,000 per trade, to make R4,000. And over time my portfolio will grow to R200,000 and I'll be able to risk R4,000 to make R8,000. The only way I can grow my portfolio is if I follow the 2% rule and compound the portfolio. But then I told him a worrying factor.
CFD with Standard Bank trading
Q “I want to open standard bank trading account. Is this a good option?”
A Standard Bank has a fantastic platform for trading CFDs...
If you're trading on a daily account and would like to use a daily chart, SBK has that option. If you want to trade intraday with shorter time frame then you'll need to look into the advanced charting from Standard Bank.
And a question for the more advanced Technical Analysts...
Q “I would like to know if it necessary to use the Over Bought / Over oversold indicator when trading CFDs.” N.P
A “The OBOS indicator is nice to use as a peripheral indicator in your trading.
If you'd like to incorporate it into a trading strategy then you'll need around 20-30 trades tested with the OBOS.
So when the indicator approaches OB, you can expect the stock to drop in price until it reaches equilibrium again. You'll look to short.
Wen the indicator approaches OS at the bottom, you'll expect the stock to go up in price. And this is where you'll look at a buy.”
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