Generating 30% return per year is a big achievement for any stock market investor and with a sensible plan of attack it could be possible for you too.
Understanding the vital relationship between risk and reward is important at the outset, and as many people know, if you want to pursue the highest rewards, you have to be prepared to risk some capital.
Now, some stock investors may get lucky and get incredible returns, but what we'll be talking about here are systematic ways to increase your stock returns using a Contract for Difference or CFD for short.
In November 2007, stock markets around the world headed south for the first time in a long time and since then, stock investor returns have been terrible. January 2008 saw the Australian Stock Market (ASX) tumble so fast you'd be forgiven for thinking you were on a wild roller coaster ride at Dreamworld on the Gold Coast, but this time around you weren't not attached!
Good stock market results start with protecting your precious capital while developing a winning system that matches your personal investment profile and this basic first step can take up to 6-12 months.
Ideally, you want to build a stock market strategy that achieves a 10% return per year without leverage before you jump in with your favorite CFD broker. Once you have confidence in your trading system, you can begin to introduce leverage into the account to maximize your trading opportunities.
CFD trading allows you to get the most out of your money and make better use of it compared to traditional stock market investing. For example, if you want to take a position of $ 10,000 in a blue chip company, you might only need 5% ($ 500) up front to control a value of 10. $ 000 from this premier business. This leverage allows you to make your money work a lot harder for you without any extra effort on your part. Sounds good doesn't it.
So, once your stock system generates a 10% return per year, it won't be very difficult to get a 30% return with CFD trading. You see if you leverage your account 3 times, then in fact you will earn 3 times 10% per year or 30% per year.
Let's take a closer look at the numbers. If you had $ 10,000 in cash in your CFD trading account and traded at 3 times the leverage, you would access $ 30,000 in total trading positions. Maybe 6 plots of stocks at $ 5,000 for $ 30,000 in total.
Using your 10% trading system with $ 30,000, you should return $ 3,000 at the end of the year. Now if you consider that you only have $ 10,000 in cash in your account as described above, you just made a 30% cash return.
More importantly, trading CFDs with leverage means that you expose yourself to 3 times the risk in the example used above, so your drawdowns in theory will be 3 times as much as your non-leveraged draws. .