Ask Colin

What is your opinion on Contracts for Difference (CFDs)?

As I understand it, they are an instrument that is only available to "sophisticated investors". To use them you will have to satisfy this definition. It changes from time to time. I think it is currently something like this:

You need net assets of $2.5 million and be able to demonstrate $250,000 on profits trading derivatives over the last two years.

I think this is good, because CFDs are derivatives and very dangerous in inexperienced hands.

Because of the leverage there is heightened financial risk.

Because of the borrowing costs, you have to add a third handicap to short term trading in addition to transaction costs and slippage.

I would not use them personally, because the game is stacked against success. Remember that at least 9 out of 10 traders in derivatives of any kind lose their money.

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