Contracts for Difference : A measure of risk management and strategic awareness

Sammanfattning: The introduction of contracts for difference, CFDs, in the Nordic market has meant a tremendous freedom for both large investors and small investors. CFDs, like many other financial derivatives, allow speculation on price movements in virtually all global markets with easy access to leverage, which is the same as borrowed capital. CFDs carry high risk and hence should only be used by qualified traders.  Swedish CFD providers have been criticized for mass marketing their services with lack of regard for the industry's sustainability. The legal requirements placed on CFD providers for customer's creditworthiness and knowledge are also said to be weak, given the products complexity and high risk. Thus, the purpose with this research is to respond to the criticism by examining the level of risk management, and the level of strategic awareness among CFD traders. The epistemological orientation of this research conforms to the philosophy of positivism, and the research approach is consistent with the deductive approach. The research is based on a quantitative data collection method were a survey was carried out with CMC Markets’ customers with 233 respondents.After examining the usage of risk management tools, position sizing and monitoring; the results suggest that the level of risk management among CFD traders is moderately high. For a trading strategy to function, and hence be successful, it is important that traders are consistent with the various components that a trading strategy consists of. After examining to what extent the CFD traders positions are based on rules and signals as well as loyalty to them, to what extent they optimize their trading strategy, and lastly to what extent they use available strategy methods I came to the conclusion that there is a relatively low level of strategic awareness.Keywords: CMC Markets, Finance, CFDs, Investment, Derivative, Securities Trading, CFD Trading, Stocks, Risk management, Strategic awareness, Trading strategy, Technical analysis, Fundamental analysis