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I am often asked by many what are the best instruments to trade – Shares, CFDs, Options or Futures?
There is no answer that ‘fits all’ and it is a matter of understanding something about each instrument and then making the call keeping in mind your own situation.
When such a subject comes up there are many less wise people who will say ‘shares only for me’ or ‘property only for me’
And the one that makes me go into convulsions is ‘options not for me .. far too dangerous’. And this comes from the mouths of business women and men who you would expect would know much better. But they set themselves up as authorities on a whole range of stuff even outside their field of knowledge.
The fact is, options in the form of spreads or option spreads on futures are the safest by a long stretch. That is, with spreads whilst you limit your upside you also limit your downside. Whereas with shares they can theoretically fall to zero and we have seen that with many so called blue chips over the years.
Well I hear you say that won’t happen to BHP or CBA. Well if a financial Armageddon appeared I am not saying they will disappear off the face of the earth but value could be nominal. And it could happen.
With shares and CFDs you can put on stop losses but they can fail for various reasons for some investors and I don’t want to go into this topic for the moment as it is a major topic in itself.
Within the subject of share investing I see two main categories. One is ‘buy and hold’. And even though assuming one does some housekeeping this strategy is largely for the long term. The other category is trading and within this can be sub categories of ‘occasional’ or ‘active’ trader.
In the limited space left I want to talk more about CFDs as this is the most often asked question. My answer here is always caution – as opposed to discouragement. What I would like to stress is education, skill development and a clear guiding plan.
It used to make me almost cry when I would go to money expos and find numerous CFD providers touting to absolute ‘newbie’s’. CFDs can be extremely rewarding when a trader has knowledge, skill, discipline, time and when they are used in the appropriate market. But I must stress take training, develop your discipline and plan and then put the toe in the water. CFDs will always be there so there is no hurry.
And the final point I want to talk about is YOU. We are all different even though we may share many similarities to others. We need to understand our knowledge and skill levels, our savvy and sixth sense, our discipline, our time horizon and availability, the size of kitty, years to retirement, risk adversity of one self and one’s partner to name just a few but essential matters for consideration. You need to match all of this with whatever you plan to invest in.
And like the Great March, remember fortunes are by one step at a time.
Enjoy the ride
Tom Scollon
Chief Analyst
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