I have been investing in CFD since 2018 with most investing this year. I see it as a good investmentproduct because the wide of different assets to invest in.
BUT - about 80 % loose money in CFD. The companies need to say the percent in commercial so it is officall.
80 % !!!
Why? I have been thinking about it and also google it - because it make no sense. This companies earn money in:
Spread- Yes sometimes it is a big spread. In eToro you pay 2% in crypto. But still, I will not loose all my money in this
Overnight fee- Yes, but that is about 3-4%/year so this is not the big fault with CFD
Leverage- Of course it is more risky to invest in Bitcoin with x2 leverage than x1, For me that leverage has made me a good amount of money this year but I understand that the risk is high.
Real problems
People dont understand what leverage do
People invest in leverage and dont understand how that will effect the value.
BUT - you dont have to use leverage! In eToro I use to have x1 or x2. So not very much. As long as I have x1 it is exactly same risk as I bought stocks at a stock exchange.
SO - it is not the CFD that is the problem - IT IS HOW PEOPLE USE IT
I have also use 50x leverage when the stock market crasch in the spring 2020. I made about 300 % in a week - but that money is gone now....(Will tell more about that soon)
Exampel
You buy stocks for 100 000 USD
With leverage x1
Down 10 % = 90 000
Then up 10 % = You have 99 000
WIth x5 leverage
Down 50 % = 50 000
Then up 50 % = 75 000
As you see above it make a big difference in value when you use leverage or not. Even in long term.
A lot of people thing that 10 % up and 10 % down will make a 0%-game. But not at all...
WIth assets that goes U-turns (like BTC) it is not a very good way to go - if you dont like to daytrade...
Wrong investors
I think this is the biggest problem. It is "wrong" people that goes to CFD-market instead of buying real stocks.
- You want a HIGH roi
- You choose CFD because it is teoreticly possible
- You loose because you take a huge risk with high leverage
Its like gambling. It is not wrong with gambling - but it can be horrifying wrong when people doing it that want MONEY FAST or try to WIN BACK money. People with wrong intention play. And I think a lot of people that use CFD with leverage have wrong intention.
I think the best way of investing is
- Think longterm
- Invest regulare every month
- Understand what you invest in
- Invest in longterm again
- Make a healthy riskprofile
- Have a strategy - AND KEEP TO IT
Do really everone at eToro understand and follow this rules? I dont think so. If they do - this company can not have 80 % loosing customers.
My own investments in CFD
I tried out CFD a little bit more this year. Buying Bitcoin x2 some 10-20 USD every month. Did I follow my rules?
Well everyone - but not the last one. If I get over 100% in 6 month I sold. I want to go back to the market but just now it feels like a really greedy market and if someone ask me "do you want 119% in 6 months" I should say yes every day in the week.
BUt YES - I droped my strategy and that I think a lot of investers in CFD do . When the value goes crazy up or down.
Psychology - To get a lot of money is not good
Sometimes I think that a lot of ROI is not good. As long as you get 10 - 30 % in a year you just let the assets be there - to grow.
But what happen if you get 100-150 % in a half year? Or 1000 % in 5 month (my cel-investments this year).
The brain will tell you "this is normal". If someone ask you want "30 % in a year" you will tell no no no. Because you use to get more....(the brain is not telling you something about luck or risk)
WIth CFD it is easy to get 100 %. Go BTC and leverage x10 and you are there (if you dont loose all your money first). And if you got lucky some times the brain will tell you "lets do it with more money...."
And now you fool yourself.
I used 50x leverage this spring when the stocks droped because corona. 350 % in some days. Did I take the profit and thinking "that was pure luck - dont do it again sir" OR "I am a pro - lets make it again"...
If I do that mistace - people with less experince will do it too.
CFD is not bad. Leverage can be. To invest without knowing the risk is really bad. That the only problem I see with trading in CFD. But a problem that take money from 80 % of all investors.
Take it easy - even in bullmarket (or is it...)