Ebook Stocks en HQ
Ebook Stocks en HQ
Ebook Stocks en HQ
DISCLAIMER
Information and strategies contained in this book are intended as educational information only and should
not be treated as advice or a recommendation to trade nor used as a sole trading guide. The past is not
a guide to future performance, and strategies that have worked in the past may not work in the future.
Digital options 1 and CFD trading involves a high level of risk and may not be suitable for all customers.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71%
of retail investor accounts lose money when trading CFDs with Deriv. You should consider whether you
understand how CFDs work and whether you can afford to take the high risk of losing your money.
Although due care has been taken in preparing this document, we disclaim liability for any inaccuracies
or omissions. Deriv is the manufacturer and distributor of its products.
Financial products available on deriv.com are classed as complex and may not be suitable for retail
clients.
The products mentioned here may be affected by changes in currency exchange rates. If you invest in
these products, you may lose some or all of your investment, and the value of your investment may
fluctuate.
18+ Please trade responsibly. For more information about responsible trading, please visit Secure and
responsible trading.
Deriv Investments (Europe) Limited, W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033,
Malta, is licensed and regulated in Malta by the Malta Financial Services Authority under the Investment
Services Act to provide investment services in the European Union.
This ebook is intended for the general public and retail and professional clients.
All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or
mechanical, including photocopying, recording, or using any information storage and retrieval system, without the
written permission of the publisher, except where permitted by law. For information about the reproduction rights,
contact First Information at the above email address.
1
Currently not offered to clients residing in the European Union
How to trade stocks the smart way
Vince Stanzione, the author and publisher of this guide, is a Deriv client and affiliate and may receive a
commission on financial products offered by Deriv.
He is a self-made multi-millionaire who mainly lives in Mallorca, Spain, and trades financial markets,
including currencies, stocks, and commodities. For more information, visit www.fintrader.net and follow
him on Twitter @vince_stanzione.
CONTENTS
- Trading times 14
- Swap charges 15
- Dividends 16
- Market orders 19
- Pending orders 19
- Fundamental analysis 23
Final note 40
Appendices 42
Glossary 54
INTRODUCTION
Introduction
How to trade stocks the smart way
INTRODUCTION
Financial markets are open to everyone, not just the “financial elite”.
The once closed-off areas, which were once stocks of a US- or Germany-listed company. Not
open only to the “financial elite”, are now open to only would you have issues with taxes, but also
anyone with nothing more than internet access with settlement currencies, i.e. the currencies in
and a small amount of capital. In the past, you which your funds would be deposited into your
would have needed a stockbroker account to business bank account.
buy and sell stocks, and you had to complete
Today, you can trade global stocks in your own
complicated forms to do so. You would be charged
base currency regardless of where you are. There
high commissions, and executing your orders
are no complicated forms to fill, and because you
would normally take long.
are trading CFDs, you won’t be dealing with the
It would also be very difficult for someone who physical delivery of your traded stocks.
was a resident of, say, Nigeria or Indonesia to buy
6
THE BASICS OF
CFD TRADING
The Basic of CFD trading
How to trade stocks the smart way
8
The Basic of CFD trading
How to trade stocks the smart way
- Use leverage.
Deriv allows you to use leverage in trading CFDs on stocks and stock indices. It means you only need to
pay a percentage of the stock’s value when opening a stock CFD trade on Deriv. The difference between
the amount you need to pay and the actual asset price is known as “margin”. The margin requirement will
be shown to you after you open a trade. It can be as low as 5%, which means you could buy $100,000 of
stocks with as low as $5,000 of margin.
Of course, the margin can give you bigger gains if the stock behaves as you’d predicted, but it can also
work the opposite way and magnify your losses.
Deriv offers ways to protect yourself using stop loss orders. It also has negative balance protection. If a
trade goes completely against you, you will not be asked for additional funds, and your account cannot
end up having a negative. As we go further through this ebook, I will also explain risk management.
9
STOCKS AND
STOCK INDICES:
THE BASICS
Stocks & stock indices: the basics
How to trade stocks the smart way
Stocks
If a company’s stock belongs to you, you own a piece or a share of that publicly traded company. In CFD
trading, the stocks themselves are never purchased and owned. Your chance to make a profit depends on
your speculation on their price change, as we shall soon see.
Stock indices
A stock index, such as the Dow Jones Industrial Average (Wall Street 30) or DAX 40 (the German Index),
is an index that measures the value of a basket of stocks. In the case of the Wall Street 30 or DOW 30, it
is made up of 30 top US companies, which currently include the following:
Table 1. The basket of stocks measured by the DOW 30 (Wall Street 30)
11
Stocks & stock indices: the basics
How to trade stocks the smart way
If the stocks within the DJIA (Wall Street 30) go up, then the index will move higher, and of course, the
opposite is also true. DJIA is a price-weighted index, which means its value is derived from the price per
share for each stock, divided by a common divisor. A higher-priced stock would have a bigger impact than
a lower-priced one.
The stocks in the index change from time to time. In the case of the Dow Jones, a committee decides on
the changes. The latest Dow Jones stocks that were added in 2020 included Salesforce (CRM), Amgen
(AMGN), and Honeywell International (HON).
12
Stocks & stock indices: the basics
How to trade stocks the smart way
If more investors wanted to sell a stock than buy it, there would be greater supply than demand, and the
price would fall.
This is a very simplistic view, and in the real world, there are a few twists to this, but basically, if someone
sells a stock, then someone else is buying it.
The US remains the most important stock market, with household names like Apple, Microsoft, and
Facebook, all having their main listings in the US.
The table below shows the current stocks that can be traded. New stocks will be added to the list
regularly, so be sure to check deriv.com often.
13
Stocks & stock indices: the basics
How to trade stocks the smart way
Stock specifications
Each CFD listed with Deriv will have its own specifications that can be viewed on Deriv X1 or MT5. Here
we see the example of Microsoft (MFST) on MT5. These specs will tell you the trading hours, minimum
trade size, stop distances, and margin requirements.
It will also tell you what types of orders are accepted.
Trading times
The official trading times for US stocks are 9:30 am EST (14:30 GMT) to 4:00 pm EST (21:00 GMT).
Please keep in mind that GMT does not change for daylight saving time (DST), but EST, which is the time
in the New York time zone, does change for DST.
Some brokers do offer pre-market trading and after-market trading. However, I tend to stick to the main
trading times.
A tip: it is often said that inexperienced traders trade at the opening time, whereas smart money trades
during the day or towards the closing. Something worth considering is waiting for the first 15 to 30 min-
utes to pass before making your first trade of the day.
1
Deriv X is unavailable to clients residing in the European Union
14
Stocks & stock indices: the basics
How to trade stocks the smart way
Swap charges
Whilst Deriv charges no commission, there is that costs will build up over time and whether your
a fee for holding a position overnight, namely, trade makes a profit or loss, you still have to pay
swap charges. A swap charge is a daily interest the funding charges.
adjustment that will be made to your trading
Swap charges are calculated at the end of the day,
account to compensate for the cost of keeping
now set at 23:59 GMT. Positions held through
your position open. To help you work this out,
23:59 pm GMT on Fridays will be charged for
Deriv has a calculator tool that calculates the
three days to cover the weekend. If you open and
swap rate and required margin.As interest rates
close a trade during the trading day, there will be
are at historic lows, it’s cheaper than ever to hold
no swap charges.
positions overnight, but you should still be aware
Example: a long
CFD trade of Apple
You are long $1 a point shares of Apple (i.e.
10 shares). The current price is $127.50,
which means the value of your shares is
$1275.00. Most probably, you are only
putting a fraction of this amount, let’s
say 10% to keep it simple ($127.50 paid
by you). This means $1147.50 needs to be
financed. Let’s say the annual financing
rate is 5%. 360 days are normally used for
financing. So your daily rate is 5% divided
by 360; in other words, 0.0139% per day.
15
Stocks & stock indices: the basics
How to trade stocks the smart way
Dividends
Many companies will pay stockholders a
dividend, which is a distribution of their profits.
Whilst holding a CFD does not make you a
stockholder, in some cases, your trade will still
factor in a dividend credit, or if you’re short, you
will be debited for the dividend. Many companies
don’t pay a dividend for their stock CFDs,
however. It’s best to check a company’s investor
relations website to find out if it pays dividend
and learn other related details. For example,
Apple presents a detailed record↗ of such
information.
The quote I am given online is $219.86 bid (sell) and 219.91 ask (buy). As I want to buy MSFT, I will
select the ask (buy) price, so I am buying at $219.91. If I were selling, I would be selling at the bid price
of $219.86.
16
Stocks & stock indices: the basics
How to trade stocks the smart way
The 5-cent difference is the spread or profit margin. Whenever we are trading, we are always looking
for the tightest spread because then it will be easier to break even, as the following example shows. If I
buy at $219.91, I will need to sell at a price 5 cents higher to break even, i.e. at $219.96. The wider the
spread, the more difficult it is to break even.
I decide to go long (buy) at $0.10 per point 1. It would be the same as owning 10 shares or $2199.10
worth of shares. As this is a CFD, you will only need to put up a margin (deposit). Deriv will show you
the margin requirement when you open the trade. It could be as little as 5%, so you would only need
$109.55 (5% of $2199.10).
You can close your position at any time (during normal market hours). You can also partly close your
position. For example, if you have $10 a point on Microsoft, you can close $5 and keep $5 running.
1
In stock trading, a point is 0.01, so $0.01 per point equals 1 share.
17
CFD TRADING:
ORDER TYPES
CFD trading: order types
How to trade stocks the smart way
Pending orders
A pending order is the trader’s instruction to the broker to buy or sell a security in future, under
predefined conditions, when the price reaches a specific level.
Limit orders
The most popular pending order is a limit order or “At Limit”, which means if price equals your limit, your
trade becomes a market order.
With Deriv as your broker, you can have your order filled at a price that is equal to or better than the limit
you’ve set. For example, imagine you want to buy (go long) Apple, but you don’t want to pay more than
$120.00 a share upon entering the trade. However, Apple shares are currently trading at $122.00. You
can place a limit order that tells Deriv to only buy Apple if and when the offer price is $120.00. This can
be “good for the day” (GFD) or “good till cancelled” (GTC), so the order will roll over to the next day. In
either case, when the stock price reaches the price you’ve set, you can’t cancel or amend your limit order.
You can also use a stop order to gain more control as explained in the next section.
SELL
LIMIT ENTRY
19
CFD trading: order types
How to trade stocks the smart way
Stop orders
A stop order is an instruction that says if X price If you set a stop order, the broker will always try
is reached, then buy or sell. Most traders use a to fill your order at the price you’ve set, but if that
stop order as a safety net, especially if they are price is unavailable, your order will be executed
not monitoring a stock closely. When this order is at the next available price. In other words, a trade
executed, the trade is completely closed. A stop with a stop order is always filled at either the price
order can be set for a limited period or for an in- equal to the specified one or the next available
definite time (a “good till cancelled” or GTC order). price (slippage). But in any case, the execution of
In either case, when the stock price reaches the stop orders is guaranteed.
stop price you’ve set, you can’t cancel or amend
your stop order.
20
CFD trading: order types
How to trade stocks the smart way
Further on, I will show you how you can use these price channels as a trading system.
Figure 4. A limit price, a stop loss price, and a take profit price for the US 30 (Dow
Jones or Wall Street 30)
21
RISE OR FALL?
ASSESSING STOCKS
Rise or fall? Assessing stocks
How to trade stocks the smart way
RISE OR FALL?
ASSESSING STOCKS
Fundamental analysis
Fundamental analysis is the study of economic, industry, and company conditions in an effort to
determine the value of a company’s stock.
Fundamental analysis typically focuses on key statistics in a company’s financial statements to determine
if the stock price is correctly valued.
I am one of the few traders who actually looks at both fundamental and technical analyses, but
technicals are my main focus, and I will cover this style of analysis in more depth further on.
The typical approach to analysing a company involves three basic steps: economic analysis, industry
analysis, and company analysis.
Economic analysis
The economy is studied to determine if overall conditions are good for the stock market. Is inflation
a concern? Are interest rates likely to rise or fall? Are consumers spending? Is the trade balance
favourable?
Is the money supply expanding or contracting? These are just some of the fundamental analytical
questions to determine if economic conditions are right for the stock market.
Industry analysis
The company’s industry obviously influences the outlook of the company. Even the best stocks can post
mediocre returns if they belong to a struggling industry. It is often said that a weak stock in a strong
industry is preferable to a strong stock in a weak industry.
23
Rise or fall? Assessing stocks
How to trade stocks the smart way
Within these sectors, we will have a number of stocks. For example, in the Energy sector, you will find
Chevron Corp (CVX) and Exxon Mobil (XOM).
Whether the overall market S&P 500 is going up or down, there will always be leading and lagging
sectors.
Of course, one strategy is to make a “pairs” trade where we trade on one stock, for example, Facebook,
going up and another, e.g. Delta Airlines, going down.
We could also go long on the S&P 500 but short a few of the individual stocks within the S&P 500. So we
may go long on the S&P 500 but exclude (short) energy stocks.
24
Rise or fall? Assessing stocks
How to trade stocks the smart way
Company analysis
After determining the economic and industry up owning an undervalued stock that remains
conditions, the company itself is analysed to undervalued. My own view is that fundamentals
determine its financial health. This is usually done do matter, especially over the longer term.
by studying the company’s financial statements. However, technical trading works better for short-
As I have stated, my style is technical, so I am not to medium-term time frames. A stock that can
going into fundamental data in depth here, but I appear very overvalued on fundamentals can keep
will give a quick overview. going up and become more overvalued.
There is no doubt that fundamental factors play At the time of writing this guide, Tesla (TSLA),
a major role in determining stock price. However, on most fundamental valuation models, seems
if you form your price expectations based on very overvalued, yet the stock price keeps going
fundamental factors, it is important to study the up. In 2020, TSLA was up over 650%, but its
price history as well. Otherwise, you may end fundamental earnings had not improved.
There is an old saying, credited Short selling can be very profitable, but overall
to the famous economist John most of your profits will come from going long, as a
stock can go up exponentially, but it can only fall to
Maynard Keynes:
zero, and that does not happen that often.
can remain
a spike in the share price, and negative earnings
will lead to a fall. Of course, you need to remember
irrational
that “markets look ahead”. You will often see good
earnings, yet the stocks could fall. Why would this
you can fully valued. You may also see negative earnings,
and the shares go higher. Again, expectations may
remain have been for worse earnings. Or the earnings
solvent.
could be bad, but a statement that comes out
is more positive, and there is evidence that the
company is turning around. As you can see,
focusing on the fundamentals to predict the future
value of stocks is not an easy task.
25
Rise or fall? Assessing stocks
How to trade stocks the smart way
There is plenty of fundamental data available, such as EPS (earnings per shares) and P/E (price-earnings
ratio).
The other problem is that data can be interpreted in many different ways. For example, a higher
unemployment number can be seen as negative. A greater percentage of people out of work implies
more benefits being shelled out at the government’s expense, fewer people paying tax and an overall
weaker economy. However, on the positive side, it would also typically mean that wage inflation remains
low – since current employees are less likely to ask for a pay raise if others are ready to swoop in and
take their jobs.
It would also mean that central banks are less likely to raise interest rates. Major banks produce a vast
amount of analysis on economies – much of which is freely available. However, it is questionable how
useful this data is to the financial trader, especially in shorter-term trades. For most, technical trading will
offer an easier way to follow the stock market and trade individual stocks and indices. Professional tools
are now available to all.
On a side note: Deriv’s unique synthetics are available for trade round the clock, every day of the week,
even on holidays and weekends, and are not affected by the news. You can learn more about them in my
new ebook How to Trade Synthetic Indices.
26
Rise or fall? Assessing stocks
How to trade stocks the smart way
Technical analysis
Technical analysis ignores news items and If the stock price goes to 60, 61, 65, 70, it is
economic data, focusing purely on price trends going up, and it doesn’t matter what the indicator
and volume. It primarily involves studying chart or news says or what you THINK should be
patterns, showing the trading history and statistics happening. The price tells you the truth and
for whatever currency pair is being analysed. You should always be obeyed. Many new traders lose
would start with a basic price chart, which would large amounts of money trying to pick the top
show the stocks trading price in the past, and look or the bottom. This is a risky strategy and not
for a trend or pattern that can help determine essential for success. Unless you have psychic
future pricing. powers, stick to a trading system and don’t guess.
For example, as stated previously, Tesla (TSLA), by
Price is king
most metrics, looks very overvalued, yet the price
Winning traders trade what they see, not what is moving higher, so it makes sense to stay with
they think. the trend.
27
Rise or fall? Assessing stocks
How to trade stocks the smart way
1. Trend higher
The lows are becoming higher. The highs are also becoming higher.
In other words, whenever the market sells off, it rebounds at a higher price than the previous time. This
is considered to be positive or bullish activity because market participants are willing to pay more than in
the past.
In this case, we would want to buy (go long) the stock or index CFD.
2. Sideways range
Prices can bounce between the two levels for a long period of time. At some stage, the equilibrium is
broken, and a new trend or range is established. This state is often overlooked, but a stock can stay in
a sideways range for weeks or even months. A sideways range is a case in which buyers and sellers are
equally matched. In this case, price levels have been formed that attract buyers (or support) and sellers
(or resistance).
We can buy a CFD at the bottom of the range, sell it at the top of the range, and keep repeating this. Of
course, at some stage, a trading range will break, and a new uptrend or downtrend will emerge.
Sideways range can be a very simple trading system, and you can, of course, replicate it on more than
one stock or stock index. You can also manage your risk by placing a stop just outside of the range.
If you look at the Amazon chart in Figure 9, you’ll see that it peaked on 3 September 2020 and then went
sideways for the rest of 2020 between $2,948 and $3,440.
28
Rise or fall? Assessing stocks
How to trade stocks the smart way
3. Trend lower
In this state, the lows are becoming lower, and the highs are also becoming lower. In other words,
whenever the stock or stock index sells off, it rebounds at a lower price than the previous time.
This is considered to be a negative or bearish activity because market participants are willing to pay less
than in the past. The stock is losing strength. The type of trade you would look to make with Deriv during
these market conditions is short selling down trades on CFDs.
29
Rise or fall? Assessing stocks
How to trade stocks the smart way
Time frames
Depending on which time frame you use in a chart, the trends and patterns will look very different. Many
traders examine multiple time frames for the same stock, such as Apple (AAPL), in one-minute, one-
hour, and one-day charts.
Deriv X1 and MT5 offer comprehensive charts across different time frames, ranging from very short-term (one
minute) to one-day bars, one week, and even one month. You can have multiple time frame charts open.
I would not look at a stock with a shorter time frame than 1 minute, as that becomes almost random.
One-minute, one-hour, and one-day are popular time frames.
Chart formats
There are various types of charts that can be used
to analyse CFDs. However, to keep things simple,
we will look at the candlestick charts. Candlestick
charts are said to have been developed in the 18th
century by the legendary Japanese rice trader
Homma Munehisa. The charts gave Homma and
others an overview of open, high, low, and close
market prices over a certain period. This method of
charting prices proved to be particularly interesting
and helpful due to its uncanny ability to display
five data points at a time instead of just one. The
method was picked up by Charles Dow circa 1900
and remains in common use by today’s financial
market traders. Figure 11. Candlestick composition
Candlesticks are usually composed of the body and the wick: the body is typically shaded in black or
white, illustrating the opening and closing trades; the wick consists of an upper and lower shadow
showing the highest and lowest traded prices during the time interval represented.
If the asset has closed higher than it opened, the body is white. The opening price is at the bottom of the
body. The closing price is at the top. If the asset has closed lower than it opened, the body is black. The
opening price is at the top. The closing price is at the bottom. A candlestick need not have either a body
or a wick. In the examples throughout this book, we have used red for a down candle instead of black,
and green for an up candle instead of white.
1
Deriv X is unavailable to clients residing in the European Union
30
Rise or fall? Assessing stocks
How to trade stocks the smart way
Moving averages
This tool has earned and saved me more money than any other.
It’s hard to trace the precise origins of the moving average (MA), although this concept is often
attributed to Richard Donchian. He was a great pioneer of systematic trading in the 1950s and ’60s. The
methodologies that he developed over 40 years ago still serve as the basis of many complex systems
used by the world’s best traders.
Let’s suppose that you need to work out a 10-day of this set would now be 64.5.
moving average of the following numbers: 10, 20,
Every charting software package incorporates
30, 40, 50, 60, 70, 80, 90, 100.
the moving average, as it is one of the most
You would add these figures and divide by 10 (i.e. fundamental aspects of trading. You will also find
the total number of items in the set), to arrive at it on the various charts featured on the internet.
an average of 55. You don’t need to worry about working it out
manually on your own.
Now when tomorrow’s price comes in – let’s say
105 – you would remove the oldest number (10) Deriv offers moving averages among its tools, and
and add 105 to the end of the series. The average they are easy to add to any stock or index.
1
Options trading is unavailable to clients residing in the European Union
2
Deriv X is unavailable to clients residing in the European Union
31
Rise or fall? Assessing stocks
How to trade stocks the smart way
Moving averages can be calculated for any data series, including all sorts of different indicators
associated with a particular currency (open, high, low, close, volume, etc.). To start, concentrate on
the simple moving average. Whilst some have tried to be clever by deviating from this straightforward
standard in various ways, it is best to stick with a simple approach, particularly as you first begin to trade.
In software or on the internet, the simple moving average is often abbreviated as SMA.
Simple/arithmetic
Exponential
Variable
Triangular
Weighted
32
Rise or fall? Assessing stocks
How to trade stocks the smart way
The chart below shows daily candle charts with the 21-day (green line) and 5-day (purple line) moving
averages. I have marked the cross-overs with arrows showing the buy and sell points.
33
Rise or fall? Assessing stocks
How to trade stocks the smart way
In this example, we see Apple (APPL) daily chart (each bar is one trading day) with a 20-day Donchian
channel. We can see that the price was trending higher before. The current trade is long as the last signal
is a buy when the price hits its 20-day high.
We can trade this system long. Then, when we have a sell signal, we can close our long trade and open
our short trade.
A simple system like this can be programmed into Deriv X1 or MT5 or applied via DBot2 to automate
trades.
I have used the 20-day chart, but you could go with a 20-hour or 20-minute chart
for a shorter-term system.
1 2
Deriv X is unavailable to clients residing in the European Union, DBot is unavailable to clients residing in the European Union
34
Rise or fall? Assessing stocks
How to trade stocks the smart way
When the RSI moves to 70, it’s a good time to look at “Sell” (“short) trades. When we see the RSI down
at 30, it’s a good time to look at “Buy” (long) trades. In this example, we can see the RSI is at 60, which
is fairly high but not overbought, so the RSI is not providing a clear buy or sell signal. Thus, in this case, it
would be best to hold off from placing a trade until clearer signals appear. If we were already in the trade,
we would remain long.
If we are using a CFD, we will look to buy (go long) when we see the RSI down at 30, and we would look
to sell (go short) at 70 or over.
35
Rise or fall? Assessing stocks
How to trade stocks the smart way
The 70/30 RSI and a 20-day lookback period are the most common settings; however, there is also
another variation worth looking at:
Let’s examine the smoothing period of 20, oversold level 20%, and overbought level 80%. Risk-averse
investors set up the indicator in a way that will make the RSI less sensitive and therefore minimise the
number of incorrect signals. With all systems, it’s always a trade-off between having too many signals,
many of which will be false, or fewer, more accurate signals, but possibly delayed.
Both Deriv X1 and MT5 are very flexible. You can easily change the settings to any combination you wish. I
have used ShareScope for some of my examples.
1
Deriv X is unavailable to clients residing in the European Union
36
STOCK MARKET
SEASONALITY
Stock market seasonality
How to trade stocks the smart way
38
Stock market seasonality
How to trade stocks the smart way
The average monthly S&P 500 stock market returns from 1980 to 2019 were:
AVERAGE : +0.67%
As you can see, there is certainly a stronger and weaker period. You can also look at the seasonality of the
individual stocks or even commodities such as gold.
Short term seasonality can also be used. A well-known system is the Santa Claus Rally, which is buying
the S&P 500 index (or you could use the Dow Jones, aka Wall Street 30) during the last 5 trading days of
the year and selling on the new year’s 2nd trading day.
If you’re interested in seasonality, check out the blog run by my friend Jeff Hirsch, the editor of the Stock
Trader’s Almanac.
39
FINAL NOTE
Final note
How to trade stocks the smart way
FINAL NOTE
I hope you found this short guide of use and that you will refer back to it in due course. This
book has shown how you can trade CFDs on stocks and indices via Deriv MT5 and Deriv X1.
Using Deriv services allows you to trade a great selection of markets. You will find additional
resources, charts, and tools on the deriv.com and MetaTrader 5 websites.
1
Deriv X is unavailable to clients residing in the European Union
41
APPENDICES
Appendices
How to trade stocks the smart way
APPENDICES
Appendix A
Unlike some brokers that make it easy to deposit money yet hard to withdraw, Deriv
enables you to withdraw easily and securely. Please note that while Deriv processes
your withdrawal requests efficiently and quickly, the period it might take banks or other
financial institutions to process withdrawals can be longer. Deriv tries to give you an
estimate of the total waiting time.
All your money is segregated and held in secure and licensed financial institutions.
In this way, in the unlikely event of Deriv becoming insolvent, all your money will be
returned to you because it is never merged with Deriv’s.
Deriv has over 1.8 million trading accounts opened with more than 8 billion US dollars
of total trade turnover, so you’re in good hands.
Each trade, even if the trading capital is small, is given a unique reference ID number
for the opening and closing. This means that each trade has a full audit trail that can be
checked, so there is no way that the outcome can be manipulated either by Deriv or the
trader.
On a side note, if you place a trade and then, for whatever reason, lose internet
connection, your trade still continues as it’s placed with the Deriv servers. You can still
check the outcome once your connection is re-established. I had this happen to me
whilst travelling in Thailand.
43
Appendices
How to trade stocks the smart way
Appendix B
Having a demo account is a great way to practise, but for a chance to profit from
markets, you will need a real account. Rules and regulations will apply depending on
the country you are based in. Deriv aims to make the process as simple as possible.
If you are requested a copy of your ID, please provide it as soon as possible to avoid
delays in setting up your account.
Once your real account is open, set yourself a trading goal or plan. Just keep in mind
that trading should not be considered as a means to earn a living, solve financial
problems, or make financial investments. As well as stocks, there are also synthetics on
Deriv that are available round the clock, so you can always come back to trade on Deriv
in your leisure time.
You can make trades in USD, GBP, AUD, or EUR even if you are based in a country that
has a different base currency. For example, if you’re based in Indonesia, your home
currency is IDR, but you can still trade in USD, which may be more stable than your
home currency.
44
Appendices
How to trade stocks the smart way
Appendix C
Albert Einstein was once asked what mankind’s greatest invention was. He replied:
“Compound interest.” There’s even one claim that Einstein called compound interest
the “eighth wonder of the world.”
I have been in the trading business for over 35 years, and I started small. It was
through the power of compounding that I could build up to where I am now. You need
to understand compounding to perceive what a powerful tool it can be. Below is an
excerpt from one of my favourite fables that sums this up. The same principle can be
used when trading with Deriv.
The daughter of the Chinese emperor was ill, and he promised riches beyond compare
to whoever could cure her. A young peasant named Pong Lo entered the palace. With
his wit and bravery, he restored the princess’s health and won her heart. As a reward,
Pong Lo asked for her hand in marriage. The emperor refused and asked Pong Lo to
think of anything else he would like.
After several moments of thought, Pong Lo said, “I would like a grain of rice.”
“A grain of rice! That is nonsense! Ask me for fine silk, the grandest room in the palace,
a stable full of wild stallions – they shall be yours!” exclaimed the emperor.
“A grain of rice will do,” said Pong Lo, “but if His Majesty insists, he may double the
amount every day for a hundred days.”
So on the first day, a grain of rice was delivered to Pong Lo. On the second, two grains of
rice were delivered; on the third day, four grains; on the fourth day, eight grains; on the
fifth day, 16 grains; on the sixth day, 32 grains; on the seventh day, 64 grains; and on
the eighth day, 128 grains. By the twelfth day, the grains of rice numbered 2,048.
45
Appendices
How to trade stocks the smart way
By the twentieth day, 524,288 grains were delivered, and by the thirtieth day,
536,870,912, requiring 40 servants to carry them to Pong Lo. In desperation, the
emperor did the only honourable thing he could do and consented to the marriage. Out
of consideration for the emperor’s feelings, no rice was served at the wedding banquet.
Risk too much, and a few bad trades will make you lose your trading bank. Risk too
little, and it’s going to be a long time before you see any decent profits. As previously
explained, money management does not have to be very complicated, but a simple
system will ensure that no single trade can wipe out your trading account. The mistake
many new traders make is trying to grow their accounts too fast.
Trading with a demo account and trading with real money are not the same. As in
most walks of life, when real money is at stake, irrational and instantaneous reactions
might take over. Since trading can become addictive, it is important to know how
to stay in control and remain reasonable, especially when trading with real money.
Besides reading the following tips, please visit Secure and responsible trading for more
information.
It may not be possible to trade logically all the time; after all, we are humans with
occasional impulsive decisions. But by using a system and steadily applying practical
experience, you can train your reasoning powers to have a more permanent presence.
Be careful about taking in too much news and over-monitoring your position. It is easy
to overreact to a news story that may cause a short-term spike but is actually not that
important in the long run.
Using mobile devices and apps can cause you to make snap decisions that you
may later regret. The same sound judgment should be used with all trade purchase
decisions, no matter how or where they’re ultimately executed.
46
Appendices
How to trade stocks the smart way
Many still believe that in order to make money, the price of a share, market, currency, or
commodity must go up. However, this is not true. As I have outlined in this guidebook,
you can profit from up, down, and even sideways movements, so don’t see falling
markets as a negative.
If you watch financial news channels such as CNBC or Bloomberg, it seems that you
should always be doing something since the channels are filled with “breaking news.”
Remember: these channels have to fill their airtime, and in many cases, the best trade
is, in fact, no trade. If you are not sure or do not see an opportunity you are happy with,
then do nothing and just wait for the next one. With the many markets offered by Deriv,
you will likely find plenty of opportunities at any time of the day or night.
Deriv offers a vast selection of trading opportunities ranging from lower-risk trades with
returns of 5-10% to those with higher returns of 100% or more. Deriv prices trades
based on mathematical probabilities. Of course, unexpected events do happen, but
overall, if you are being offered returns of more than 200% for a trade lasting a day or
less – just as an example – the reason for such generous returns is that the likelihood
of a payout is fairly slim. Keep in mind that it’s readily possible to “mix and match” your
trades on Deriv.
Some people trade casually, and that is perfectly fine. Some approach it with a more
serious attitude. While I do not encourage you to view trading as a means to earn
a living, to solve financial problems, or to make financial investments, and while I
certainly don’t deny the role of chance in trading, I do believe there are ways to trade
more smartly, especially when it comes to financial indices. See the tips under “Keep
your emotions in check and trade wisely”. For instance, keep solid records of your
winning and losing trades. A diary can help with this to complement the tracking tools
you’ll find on deriv.com, enabling you to keep tabs on your winnings. Also, stick to a
trading system to help minimise emotional decision-making.
47
Appendices
How to trade stocks the smart way
Appendix D
If you’re going through a bad run, then take a step back, reduce the size of your trades,
or maybe even go back to using a demo account for a while. Deriv does not place a time
limit on demo accounts, and you can use your real and demo accounts side by side. In
fact, since Deriv is committed to responsible trading, it encourages you to use all of the
measures it offers to stay in control at all times.
There’s a practical tip that might help you manage your risks while trading. Let’s say you
start with a $1,000 account. If you limit your risk on any one trade to 5% of the account,
this practice will allow you to keep trading, even with a bad run. Let’s observe this
simple system in action.
The maximum stake on a single trade should never be more than 5% of your account
total. So initially, 5% of your $1,000 account balance would be $50. If your balance
goes down, then your trade size is proportionately reduced.
Let’s say that – following a few losing trades – your account balance decreases to $900;
5% of this amount would now be $45. If you have had a good run, then your allowance
per trade increases proportionately.
Suppose you’ve had a few winning trades in a row and your account balance has risen
to $1,200; your 5% maximum per trade is now $60.
The key is that no one trade should ever blow your trading account.
48
Appendices
How to trade stocks the smart way
If your account goes down 50%, how much do you need to put on the line to get back
to even? Most will say 50% to make up for the previous losses, but here’s the problem:
You would need the account to move 100% to make this strategy work. As any trader
will tell you, this is not a wise approach.
Note: If you had a larger account, say $10,000, you could reduce the maximum risk to
2%.
The maths of percentages shows that as losses get larger, the returns needed
to recover to the breakeven point increase at a much faster rate. A loss of 10%
necessitates an 11% gain to recover. Increase that loss to 25%, and it takes a 33% gain
to get back to breakeven. A 50% loss requires a 100% gain to recover. An 80% loss
necessitates 500% in gains to get back to where the investment value started.
Watch that ego. Don’t mistake a lucky run with skill. After a good run, many become
overconfident and start taking stupid risks. After a poor run, many attempt to play
catchup, trying to make their losses back fast. Both of these slippery slopes are easy
ways to lose your trading capital.
Many books have been written on money management with complicated formulas.
The key principle is quite simple: no single trade should ever cause you irrecoverable
financial or emotional damage. However sure you are that XYZ is going to rocket, only a
percentage of your trading bank should ever be risked.
When real money is at stake, you need to be careful. Technology is wonderful; today,
you can carry the power of a supercomputer in your pocket. It’s now possible to make
trades on the move from a mobile device from anywhere but do take care. Some tend
to trade very differently on mobile devices than they do when they are sitting at a laptop
or desktop. Be sure to apply the same level of strict discipline to trades purchased on
mobile devices as you would on your desktop. It’s all a matter of mindset.
49
Appendices
How to trade stocks the smart way
Appendix E
Some of Deriv’s best clients are also its best affiliates. To find out more, please visit
Deriv’s affiliate programme page.
50
Appendices
How to trade stocks the smart way
Appendix E
Deriv has a simple trading bot called DBot, which allows you to input your own trading
rules with no computer programming skills. You can also import ready-made strategies.
A simple system such as ‘buy when two simple moving averages cross’, or ‘buy after 3
upticks’ can be easily programmed in.
Deriv currency trading is also compatible with third-party vendor trading systems where you can use
trading software that would plug into your Deriv account. Deriv X1 and MT5 have a growing number of
plugins and scripts which allow you to trade systematically.
1 2
DBot is unavailable to clients residing in the European Union, Deriv X is unavailable to clients residing in the European Union
51
Appendices
How to trade stocks the smart way
Appendix G
FAQs
Opening an account
I’m new to trading. Where do I start?
The first step is to open an account. You can apply online in just a few minutes.
Financial security
How safe is my money with Deriv?
Your money is always safe with Deriv and held in segregated accounts at all times.
1
Deriv X is unavailable to clients residing in the European Union
2
Deriv MT5 is currently unavailable on App Store at the time of writing this ebook
52
Appendices
How to trade stocks the smart way
Is it possible to deposit and withdraw the same funds through different payment
methods?
Unfortunately, no. Funds initially deposited through one payment method must be
withdrawn through the same system; funds cannot be transferred to an alternate
system for withdrawal. However, Deriv offers a wide variety of payment methods to
suit your specific needs and preferences.
53
GLOSSARY
Glossary
How to trade stocks the smart way
GLOSSARY
Contract period
Bid price
The contract period is the time frame of a trade.
When trading a CFD, the bid price is the price
It is also called the duration.
you can sell. In the pair of quoted prices, the
first price is the bid price; for example, 1.2810
(bid)/1.2811 (offer).
Counterparty
The counterparty is the other party that
participates in the trade with you. If you trade
Bullish
CFDs via Deriv, your counterparty will be Deriv.
This refers to a market that is rising. Someone
with a positive view on a market would be a Bull.
Closing price
An asset’s closing price is the last price at which
it was traded on any given day.
55
Glossary
How to trade stocks the smart way
Fundamental analysis is the price you buy. In the pair of quoted prices,
Fundamental analysis is a method of quantitative the second price is the offer price; for example,
and qualitative analysis used by traders to 1.2810 (bid)/1.2811 (offer).
determine the macroeconomic outlook of a
country and currency. Inflation, unemployment,
and interest rates are just a few of the Pair
considerations in fundamental analysis. In stock trading, we can make 2 separate trades
to back a scenario. We could go short on oil and
long on solar energy.
GMT
GMT stands for “Greenwich Mean Time,” the
official time used in the UK during winter. In Point
summer, the UK changes to British Summer Time, In stock trading, this is normally a cent, so if a
which is GMT + 1 hour. All times on the Deriv site stock trading at $123.10 moves to $123.11, it
use GMT all year round. will be 1 point.
Long Profit
Being long with regard to a market or CFD means The profit is the difference between the purchase
you expect the market to go higher, and you own price and the sale on a winning trade. In the case
that CFD. It indicates a bullish attitude. of a short trade, your sale price would be higher
than your purchase price to make a profit.
56
Glossary
How to trade stocks the smart way
Underlying
Spread Each contract of difference is a prediction
Spread is the difference between the Bid and the concerning the future movement of an underlying
Offer. This is where the broker makes their profit. market, i.e. the specific type of asset involved in a
The tighter the spread, the better for the trader. given trade, for example, the DAX 40 Index.
Stock indices
Stock market indices measure the value of a
selection of companies in the stock market. For
example, in the USA, the S&P 500 would list
500 of the largest companies. In Germany, the
Germany 30 has 30 top German stocks. Both
indices can be traded via Deriv.
Stock split
A stock split increases the number of shares in a
company. A stock split causes a decrease in the
market price of individual shares, not causing a
change in the total market capitalisation of the
company. Stock dilution does not occur. They are
used after a stock has had a strong run to make
the share price more manageable.
57
About Deriv
Deriv offers a wide range of products to its global client base, enabling
them to trade forex, stocks, stock indices, synthetics, cryptocurrencies, and
commodities.
Today, Deriv has offices in 13 countries around the world with over 1000
employees from over 50 countries working together to create an effortless
online trading experience with diversified, market-leading products.