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How do CFDs work? And why you MUST AVOID CFDs!!! - YouTube
Channel: Divity Finance - Tips for Finance & Investing
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oh there we go another child who doesn't
make a cent in the stock market and
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wants to teach my boss yes please yes
I'm a child and in this video I'm going
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to tell you why you must avoid CFDs hey
it's Dario and this is Divity trading a
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platform where we can share our best
tips and tools when it comes to trading
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investing or finals in general you know
I see many videos talking about CDs how
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easy they are to use how much money you
can make with CFDs how beautiful they
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are and as usual I'm not quite in
agreement with these statements and in
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this video I'm going to tell you why but
hey before we start if you enjoyed the
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video please leave it a like and let me
know in the comments down below what are
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your thoughts on CFDs
do you use you have these so before we
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start talking about the reasons why you
should avoid CFDs we firstly need to
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understand what CFDs are they are
basically an arrangement that you make
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with a broker where you gain money from
the difference between the opening price
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and the closing price of the contract
there are derivatives and they replicate
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the underlying asset such as a share or
an index for example and because they
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replicate the asset they don't give you
the right to own the asset and so we
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have already a big problem it doesn't
give you the right to have the asset
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that means that if you buy a CFD that
for example replicates Apple the
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movements of Apple you buy the CFD but
you don't have the right to own the
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Apple share but you know what maybe you
don't care about having or not the share
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of Apple but let me give you an example
where this problem comes out what if
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your broker closes what if your broker
goes bankrupt in this case because you
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don't have the ownership of the share
and because there is no one surveilling
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the situation you don't have the right
to keep the share or to keep the CFD
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that means that if the broker closes the
safety is gone and you lost all your
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money so you don't just have the normal
risk that there is in the nature of
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trading you also have the risk of your
broker closing whereas with pure
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you don't have the risk because you own
the share there is none name your name
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on the share and if something happens to
the broken you can easily transfer your
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share on to another broker another major
problem that I see is cost and here many
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people tell me that there is no cost in
CFDs or the cost are less than normal
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shares well that's not exactly true let
me just explain you with CFD brokers we
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had Commission with completely normal we
have it even in pure shares and you
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might say yeah but I saw some brokers
that now have Commission so actually the
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costs are less not exactly instead of
Commission's some brokers have spread
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and we see another major problem CFDs
are not regulated by anyone so that
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means that the price of the CFD can vary
between broker and broker and the broker
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can choose its price slightly of course
but that means that they can increase
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the spread which is the difference
between the bid and ask price for
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example if I want to buy an underlying
for example again a flow at 100 that
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means that with the spread I might sell
it at 101 102 or 103 with pure shares
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that spread is much lower and especially
the brokers don't gain money from the
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spread also in addition to Commission's
or spreads we have the so called swap
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which is mind blowing for me can you
imagine that you have to pay to keep
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your shares or to keep your CFD
contracts in the brokers overnight that
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means that for CFDs there is no
long-term you cannot keep a share
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long-term because you're just going to
pay crazy amount of money with swap and
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another major problem that I see
especially for new traders is leverage
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brokers who offer safeties usually tend
to promote or even a highly promote
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leverage and the usage of high leverage
and I'm not talking about 1.5 to
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leverage I'm talking about 10 20 30
leverage on the stock market and that to
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me is just insane
I mean with a mark
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when the cup risk is so high where
everyday there is a gap you are
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leveraging your capital 10 20 30 times
are you crazy
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that's why when we talk about stocks
leverage shouldn't be used not even 1.5
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or to leverage for me especially if you
are a newbie that's because you have
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gaps and gaps the go below or beyond
your stop-loss and in that case you can
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lose a good portion of your capital I
had one guy asking me how he could have
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avoided losing 2,000 bucks in a trade
because of gaps
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I just told me to not use leverage and
to start using pure shares and not see
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of these losing $2,000 because of a gap
is a major risk is a major risk that you
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can have only one trillion C of these
because with pure shares you don't have
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that amount of leverage you have maximum
two three leverage not ten twenty or
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thirty and believe me important gaps
that go beyond your stop-loss happen and
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when they happen you have to be prepared
and that means not risking for me at
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least more than ten fifteen percent of
your capital per trade that means that
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you cannot invest more than ten fifteen
percent so in this case you don't even
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need leverage
not even to leverage and if I didn't
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convince you yet let me just ask you
this question if hedge funds if
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investments funds and if professional
traders don't use CFDs and high leverage
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why should you why should you use this
if you are a newbie if you don't know
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how to invest in the stock market if you
don't truly understand the markets why
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should you risk so much but also why
should you use CFDs when there is
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another option that is better that costs
less if you choose the right brokers and
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that gives you less risks so my advice
here is to stop using CFD or don't even
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think about using safeties and start
using pure shares they have all the
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benefits of service and even more and so
these were my thoughts on CFDs but hey
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if you enjoyed the video please leave a
like
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let me know in the comments down below
what are your thoughts on CMT's and do
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you use them to trade and I'll see you
in the next video so what is speculation
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in the stock market is it the same thing
as investing if I find a stock and I
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think it might increase its value I can
decide to make a thorough research on
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the company I make a detailed analysis
technical and fundamental analysis and I
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come to the conclusion that the price of
the stock
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