You may have seen the ads; they look like a film trailer with impressive imagery, fast editing, pulsating music and a voice over guy with the velvet voice.
Except Bruce Willis doesn’t appear as the hero, some numbers pop up and Mr Velvet Voice implies you could be the hero of this story.
I’m talking about Contracts for Difference or CFDs.
CFDs are short term bets on the direction of a share, currency, or commodity, except you’re putting 5 per cent of the value of the bet down to be exposed to the whole 100 per cent of the price.
Essentially, if the price moves 5 per cent against you, you’ve lost all of the money you put down – any further movement and you start to owe the CFD provider.
You’re entering into a highly leveraged bet with the CFD provider, which could deliver serious losses.
As ASIC noted on its consumer advice website, “CFDs are like borrowing to gamble.”
The scary thing, those slick ads are seemingly aimed at retail investors.
The average person may want an online broking account and conveniently CFD providers offer cut price broking as a lure.
After the customer has signed up for broking, the CFD salesman is on the phone selling the benefits of trading CFDs, usually with a free trial and some free trades.
Things can get very slippery here because anyone can make a few correct guesses on short term movements and assume they’re mastering CFD trading.
Nothing could be further from the truth, short term movements are often impossible to consistently predict and the market can move against you in the blink of an eye – think the Japanese earthquake.
If you’re looking to lose money, there’s safer ways – as a long suffering Richmond supporter, $5 on the Tigers this weekend should provide a laugh, without losing your shirt in the process!
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL / ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. If you want help with your financial future, we think we’re Australia’s top financial adviser. We think we’re the best financial advisers in Tasmania.
