CFD trading has its own set of myths and unjust perceptions, which have grown up surrounding the traders, funds and online forums where traders and relevant other stakeholders gather. While these myths and rumours can arise fairly easily, shaking them off can be a different story altogether, and for some would-be CFD investors the content of these myths can often damage their perception of CFD trading as an investment style.
Nevertheless, it’s important to dispel some of the more common myths, both positive and negative, that give traders a skewed perception of what they can expect with the markets and dealing in CFDs, to help prevent future traders from either firing in all guns blazing to a marketplace they know nothing about or steering clear of an investment style to which they might be particularly suited.
Get Rich Quick with CFDs?
As CFDs have become more popular, it’s only a natural side effect that the stories of overnight riches begin to circulate. As a categorical debunking of this classic CFD myth, getting rich with contracts for difference is certainly not an easy process, and it is one that takes painstaking effort, attention to detail, and wily trading. Even experienced traders have lost it all in the CFD markets, and trying to tame the beast that is the markets is something that hardly any investor in history can say with confidence they have achieved.
Of course, the whole purpose of CFD trading is to make money, and it is naturally possible to generate a return on your investment that would put any interest bearing bank account to shame. However, it’s important that you temper any ambitions of significant wealth with the understanding that even investment houses, packed with the sharpest trading minds in the world and all the resources you could ever need still get it seriously wrong from time to time.
Just Keep On Winning
Likewise, it is often thought with CFD trading that its possible to consistently pick winning trades, simply by reading the markets and following the logical steps to their natural conclusion. Sadly, the trading environment just isn’t that straightforward, and in order to be successful you have to accept that you can’t win them all.
Regardless of anecdotal evidence you may have heard to the contrary, CFD traders lose all the time (even the highly successful ones), and it’s all just part of the wider process of investing. Sometimes you’re up and sometimes you’re down – it’s all about achieving the right balance so that your positive trading outcomes outweigh the negatives sufficiently to turn a profit.
Broker Irregularity
A common myth amongst disgruntled CFD traders is that the brokers deliberately ‘fix’ their platforms to work against the interests of the trader. This is a myth borne out of frustration, and is simply illogical when followed through – after all, any broker (who would naturally be under heavy scrutiny from the relevant authorities) electing to extort short-term gains by ripping off their clients would have trouble surviving long-term. It’s in everyone’s interests for you to succeed as a CFD trader, including your broker’s. Remember that even though things can seem to be unusually unlucky at times, that’s the nature of CFD trading – it’s a high risk business, and the markets are inherently unpredictable, so calling it one way or the other is always going to be an exceptionally difficult task.
CFD Trading is for Amateurs
Another myth that’s all too common (although, thankfully on the way out) is the belief that CFD trading is somehow less credible than trading other instruments. For some reason, certain traders are of the opinion that CFD trading is not as worthy of investor attention as other forms of investment, and that’s too bad, given the extent of the potential yield from trading in CFDs. Ultimately, this snobbery is senseless and irrelevant, and the only thing that matters when trading anything is the bottom line.
Furthermore, it’s also an assertion that simply has no basis in fact. During times of greater financial secrecy in the City, contracts for difference were one of the best-kept secrets of the professional investment business. Today, with increased pressures to become more transparent, the appearance of contracts for difference on fund balance sheets has delivered the final, fatal blow to this somewhat unhelpful myth.