Know the Markets you are Trading
Trading more advanced products has been mentioned previously. Only a handful of providers offer a full range anyway. The biggest mistake made is confusing the name of the product with the actual underlying product.
Know the market you are going to trade and test it first!
A CFD is ‘based’ on the underlying price/quantity which could be the S&P/ASX 200 let’s say. Now this is not generally tradeable except as a derivative product, usually being the SPI which is a futures product with limitations compared to CFDs. The price quoted by CFD providers will be the name chosen by the CFD provider and likely be the Aussie 200, Aus200, Aussie 200 cash or the likes and could be based on:
- S&P/ASX 200 price (sometimes quoted as the cash price)
- SPI price (most likely)
- SPI price with ‘fair value’ adjustments for dividends, interest etc
- Something totally else of their choosing and design.
It is important to know the basis of the price, the exact hours of operation, if the spreads change and any other special rules. Most of these will be listed in the relevant Product Disclosure Statement from the provider but you need to go through it and if need be – double check the meaning. If you have tested a trading method then you will need to match the product to the method you used or test again using the new product. Definitely don‟t assume the products are the same.
Trading ‘sectors’ will require the same scrutiny as above and some products have variable spreads. The opening and closing times plus times of market panic can have much wider spreads than during the day. Do your research and watch the markets with the provider of choice for a while before you get started or at least only trader single contracts to start with.