This article was written in partnership with IG, the world’s No.1 CFD provider (by revenue excluding FX, June 2019). All views expressed in the article are the independent opinion of DollarsAndSense.sg
Jay Tun first started trading when he was just 22-year-old. While doing a part-time job during his time in university, he noticed that one of his colleagues was constantly glued to a screen reading charts. Curious, Jay Tun asked him about it, and that was the beginning of his journey into trading.
He encountered varying levels of hits and misses during his initial foray into trading. After winning on his first three trades, he blew up his whole account on his fourth trade – where he lost everything, plus another $5,000 on top of it.
The incident spurred him to become a better trader. Jay Tun knew that while he thought he had already amassed sufficient knowledge, it was barely scratching the surface of what he needed to know to be a successful trader. He started to read extensively, attended events and logged into webinars, and finally implemented the right strategies that worked for him.
After graduating, Jay Tun became a full-time trader, and he also started Swim Trading to teach new traders and people who want to start trading about the painful lessons he learnt as well as the strategies he used to become a successful trader. He also created a Facebook community, Swim Trading Trade Discussion, for new and established traders to learn and discuss with one another about their trades.
DollarsAndSense (DNS): Thanks for speaking to us. Let’s dive right into it – what are your thoughts about the new Knock-Out product?
Jay Tun (JT): This product is different to conventional CFDs (contract for differences) as you can set a dual-layer stop-loss.
The product has a “Knock-Out” function where we get something like a guaranteed stop loss, which closes your trade regardless of whether markets gap up or down. This is on top of our intermediary stop-loss that we typically set for our trades.
Knock-Outs have directional flexibility of buying and shorting, which is hard to come by in Singapore.
As Knock-Out is a relatively foreign product in Singapore, naturally not everyone understands how it works.
DNS: Recently, the foreign exchange margin trading also increased from 2% to 5%. How has this increase in minimum margins affected you and other traders?
JT: This move is a short-term pain for long term gain. It will weed out the “get rich quick” retail traders looking to “gamble” with a very small initial sum. In a way, it’s a responsible move by the authority, but that also means that the returns by retail traders may be lowered.
This move has affected me in a small way, as it reduces the simultaneous positions I can take with my accounts. The advantage of it is that it also forces me to be more selective with my trades, instead of being more liberal with my selections.
Knock-Outs act as a safety net for the traders who can limit the maximum loss amount when their positions are “knocked out”. In this case, there will never be a margin call situation, which is great during this volatile period that we are seeing because of COVID-19.
DNS: How do you think the Knock-Outs product can help your trainees and other traders?
JT: It gives traders more alternatives to what is already available in the market – mainly CFDs and DLCs (Daily Leveraged Certificates).
With Knock-Outs, we have another product giving us the ability to go both long and short – which is hard to come by in Singapore.
Furthermore, traders will benefit from knowing – for sure – that there is a maximum loss they can incur, regardless of market gapping down beyond their stop-loss. Knock-Outs provide a two-tier safety net.
Traditionally, traders would only be able to long(buy) or short(sell) and have just one level of stop-loss. If market gaps up or down, it will only be stopped at the next available price, in times of huge market swings you might lose even more than you expect as that stop is not guaranteed.
DNS: Do you also see any groups of traders who may not want to use Knock-Outs?
JT: I believe most traders will benefit from Knock-Outs as it continues to provide directional flexibility of buying and shorting with the additional benefit of managing your risks you take. Slightly older traders, who are set in their strategies and ways may not want to learn about a new product.
Certain types of investors may also be very familiar with stocks and are keen on buying the underlying assets, as opposed to derivatives.
DNS: With increasing global uncertainties, and hence higher market volatility, do you think Knock-Outs can play a part in limiting the downside for traders?
JT: Traders profit from market volatility so that’s not a problem in itself.
With heightened volatility, Knock-Outs can provide traders with peace of mind with its two-tier safety net. The “Knock-Out” level acts as a guaranteed stop loss and traders can sleep better knowing that they have a risk-management strategy in place which guarantees the maximum amount they will lose with the stop.
DNS: Will you use Knock-Outs in your own trades?
JT: I will definitely consider using Knock-Outs.
I’m have not started using it yet as I am still monitoring Knock-Outs for now, and just need to get an in-depth understanding of the product before using it. I think it has been around for less than a year.
I’m predominantly using CFDs now. Even with CFDs, it took a few years for traders to start understanding the product before the adoption of it became widespread. I believe it may be the same case for Knock-Outs, and it is a matter of time before traders build up their knowledge and then it will become mainstream.
Understand What You Are Putting Your Money Into
Jay Tun suffered significant losses after following a trade recommendation when he first embarked on his trading journey. To avoid repeating the mistake, he realised he had to learn a lot more about the subject if he ever wanted to succeed.
Similarly, we need to ensure we have the right knowledge and tools before we embark on any trades we make. To give ourselves the best chance to succeed, we need to know what we’re putting our money into. Knock-outs are a great way for new traders to be introduced to trading because traders are required to set a maximum stop-loss level for themselves for each trade. We can start by reading and understanding more about the Knock-Outs product before delving into it.
We can test-drive our strategies on Knock-Outs before putting in cash, by opening a demo account for it. While trading with simulated funds can be different to real funds, a demo account still provides valuable information about how a trade may play out.
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