CFD: Investing or Gambling?

I jumped on the volatility of the FTSE three days ago.

Today is the day of reckoning and I got burnt badly losing £1400 in just three days. You heard about the roulette story, but this is real.

£1400 is a lot of money. I could fly back to Malaysia twice or pay off two months' worth of rent or retake the driving test for 10 times or stock up my groceries for more than a year!

Of course when you "invest", you wouldn't think about all these things.

But I did think about what I could afford to lose. And am I glad this came out to be less than what I was prepared to lose!

At first I felt quite upset about it but after a while, I was back to myself, working as usual.

Now I even have the appetite to blog about it!

Sometimes I think my recovery is too fast. Maybe because I tend to think that things could have gotten worse had I not exited the market or that there's always a price to pay for being an idiot; or you can say to learn a lesson. Life is too short to keep mulling over things that have past. And then I try to look at things differently - £117 of fun every month for a year packed into three days! I know a gym wouldn't even cost that much here, but then…oh well...

So what happened?

In the UK there's this investment instrument called the CFD, which stands for Contract for Difference. As the name suggests, you are paid on the difference of your prediction. You can bet on anything, from the FTSE to Dow Jones and up to the Nikkei Index. You can even predict if the house prices in the UK would fall or rise at the end of the day!

Now if you ask me, I would agree this is gambling.

CFD works like this. Take the FTSE for example, if you predict the FTSE will go up, you bet on "long", which means for every point it goes up, you get £10 but if it moves against you, you lose £10. But if you think it will go down, you bet on "short" (this means short selling), so if your prediction is right, you get £10 for every point the index drops and lose £10 if it moves against your prediction. Simple isn't it?

Yes, it's also extremely simple to lose a lot of money! The FTSE doesn't move one or two points. It can go up and down in hundreds in a second. So, if the index moves against your prediction by 300 points, you would have lost £3000!

You can talk about putting a stop-loss and all. But a loss is still a loss. Whether it's £100 now, or £1000 later, the cumulative effect is tremendous and if you're not careful in monitoring the deals, they can run up to thousands. Greed and fear are the two things that will blur your judgement in the tense trading situation. It's all down to discipline in the end.

There's a Chinese saying about the odds of gambling; "9 losses in 10 bets". (Should be inverted if translated directly). And CFD is gambling by another name.

Having said that, what I lost pales into insignificance if I compared this to what I could have potentially lost!

In these three days, I have noticed these changes in myself:

Keep wanting to go online almost every minute!
Loss of sleep
Loss of concentration
Couldn't be bothered with things
Loss of appetite
Emotionless
Impatient
Easily agitated
Feeling insecure
Worry, worry and worry

When I saw laughter and people chatting away yesterday, I thought to myself, "Hey, I want that life back! This is not what I want! I don't want to be worried all the time. It's not from God!"

I am glad it's all over now. Looking back, what great fun this was. Yea, how ironic! It's like bungee jumping that lasted for three days!

I always like to try new things. But I think CFD is the most destructive element I've ever come across. Of course, you can also think that it could possibly make you a lot richer if the deals went your way. Yea, "if".

Be careful with "Ifs". My experience with "if" is it's a two-letter word that can spawn good as well as bad ideas!

If you really need to invest that extra cash sitting under the pillow into the stock market, I suggest the traditional way of buying good stocks, keep them, get some dividends and sell them when the price is right.

Sometimes we have to go through certain paths to appreciate the things we have or not have in life. I know this sounds a little philosophical and probably you'd have heard this millions of times but this lesson has reinforced my belief that money is not everything. Money that is lost can be earned back as long as we live but if we lose our health, our friends and our identity, we lose everything. Most importantly, never lose faith in God.

There's really no free lunch in this world. There's no shortcut to success and no success without hard work.

Now for my next stunt it's probably a good idea that I get serious in becoming a Chartered Engineer.