CFD chat

Perfectly understandable Chartrider, and who would trade like that? The thing is: If you adjust the number of CFD's you buy to take into account the margin factor, ie. keep the same stop loss but buy fewer CFD's than you would shares, thus if you're stopped out you still only lose 2% of your capital. But does this give you profit advantages over buying the shares?

davkell

With reference to medium term trading, I've arrived at the same conclusion as you.  I considered the following scenario:

A trader has set a risk limit of 2% of total equity per trade, and a SL level of 5% for each position.

Lets say the trader has $10,000 equity, then the allowable risk for one position is $10,000 x 2% = $200.  Now, $200 / 5% = $4000, so $4000 can be pumped into each position.  Lets say the trader wishes to hold a maximum of 5 open positions concurrently, then the total portfolio is $20,000, leading to 50% margin.  The maximum amount of equity at risk at one time is 10%.

50% margin could be done either with CFD's or buying shares directly with margin loan facility.

Chart Rider