Why CFD Trading is for Suckers

Unless you’re absolutely killing it trading Contracts for Differences (CFDs), then you’re totally being suckered out of your money. CFD trading is a binary operation, in other words there are only two sides – big winners and many big losers. The winners aren’t who you think they are though and I guess that’s true for the losers as well – there are a lot more losers than you think.

The winners

Those CFD traders who manage to make money day-trading aren’t the winners of this racket. Sure, there are indeed some super-lucky day-traders who even go on to make a small fortune trading CFDs, but they’re just part of the game which is rigged in favor of the brokers. The brokers are the real winners and everybody else who trades is a loser.

Brokers charge commission on the services they offer in the form of making the trading platform available to traders and so whether you’re going long or short on a particular stock that’s listed on their platform, you pay the broker for their service of officially completing your trade for you.

Even the best of traders will admit to CFD trading making for an unsustainable way to try and turn into a long term income channel, which is why many traders often look beyond their trading to try and make some extra money by soliciting other traders to join the platform they’re using. They earn commission for referring new clients to the brokers they use.

Everyone else is a loser

Sure, one could rightfully argue that brokers, even those who operate automated trading platforms online, are indeed offering a service for which they should get paid. However, if we were to talk about fair remuneration for the work someone does, this is far from the case with regards to how much money brokerage firms charge for their services. Yes, as an individual trader the spread you’re being charged may not appear to be making even a small dent in your budget, but when you look at it from the point of view of the sheer numbers associated with the typical online CFD trading platform, it begins to make a lot of sense why financial services professionals jump through all manner of fire rings to become licensed brokers.

Imagine there are 10,000 online traders registered to one platform, each of whom complete at least five trades per day. As the broker you’d be collecting trading fees from every one of those trades with the most engaging part of your “work” having already been done since you’ve already gotten your broker’s license.

Fair game – that’s perhaps something to be lauded as a wily financial engineering trick and well, so long as you’re not involved in anything like insider trading, you’re not doing anything wrong if you’re a broker.

If you’re not a broker though and you insist on trading CFDs, chances are you’ve lost more money than you’ve won and I refer to it as winning and losing because that’s exactly what it is. It’s a betting game and as you’ll know, generally a gambler loses more money than they win, something which proves to be invariably true when you consider it from the point of view of the collective.

This is why in the gambling industry there is a phrase which says “The house always wins,” but if you look at the CFD trading industry as well, the same applies, perhaps even more so because in the CFD trading world there isn’t a percentage which is set aside by law to be paid back to the “gamblers” as winnings.

If you don’t want to be a sucker of the CFD trading world, by all means try your luck, but it’s not something you can do forever.