If you are involved in trading Contracts for difference (CFDs) and you read the papers, then you would have come across a number of CFD articles suggesting that trading CFDs is just like gambling. In this article we’ll take a look at the reasons behind such an damning reference and explain clearly how to ‘remove the gambling’ in your CFD trading.

Las Vegas & the rich and famous

When people think of gambling, visions of Las Vegas, roulette tables and the rich and famous come to mind. Next you have the horse races and events like the Melbourne Cup which literally stops the nation and over $250 Million is invested (aka gambled) on this one race alone.

Yes Australian’s love to gamble and recent reports indicate that 80% of Australian’s gamble which represents the highest rate of gamblers per capita in the world! Australia also wins the title for the most poker machines per capita in the world. We sure are off to a flying start aren’t we?

For many years seminar spruikers have indicated that Australian’s are the largest owners of shares per capita in the world and most recently CFDs have literally exploded on our market. It seems to be true that Australian’s love shares and have taken to CFDs like Tiger Woods to the fairways and knee surgery.

Time to trade your Holden for a Porsche

The people who suggest trading CFDs is like gambling, usually come from a history of long term stock investing where solid blue chip companies paying attractive dividends rule the portfolio. Many traders would suggest going from trading stocks to trading CFDs is like trading in your Holden Barina for a twin turbo Porsche 911. If you are an inexperienced driver, then jumping behind the wheel of a high performance car could be deadly, just like those trading CFDs with little to no experience.

Stock Markets worst result in 26 years

If we stop to consider the recent market correction, which experts have identified as the worst yearly performance of the Australian All Ordinaries index in some 26 years, can we even be safe investing in solid blue chip companies like National Australia Bank, AMP or ANZ bank? Many Self managed super funds and accounts of investors holding on to these ‘Blue chips’ have lost anywhere from 15-45% since their November 2007 highs. Calling the buy and hold strategy gambling would be a large mistake on my behalf because without knowing the time frame or risk tolerance of the investor would mean I’m just making a huge generalised statement.

So too with CFDs in that calling CFD trading gambling without knowing how the product can be safely used, the trader or investors time frame and risk tolerance then this statement too would be a huge generalised statement.