Episode Transcript
[00:00:00] Speaker A: Welcome to the Traders Handbook, a limited podcast series brought to you by IG in partnership with your host, the Finance Ghost. Over the course of our upcoming episodes, we are delving deep into the world of trading, helping both novice and seasoned traders alike navigate this exciting field. Join us as we unravel the intricate strategies and insights that define this dynamic landscape and the beautiful puzzle that is the markets. IG Markets South Africa is an authorized financial services and over the counter derivatives product provider. CFD loss can exceed your deposits.
[00:00:35] Speaker B: Welcome to episode 11 of the Traders Handbook. What a wonderful season it's been. What a great few months of making this great podcast about trading and just helping people make that journey from investing to trading. That's very much the way we've couched it, you know, especially for someone like me who historically has focused very much on investing, pretty much only on equities, it's been great to actually learn about this world of trading and not just equities. And that's been the theme of the last couple of shows, actually. We've touched on forex, we've touched on commodities, we did an index trading show. So there really has been a lot to learn. And these shows are evergreen, so I would certainly encourage you to go back and listen to them. You know, they're all about trading the asset class, not specific ideas that are relevant for a short while and then go away. And today we're going to do something that is perhaps the most important show of all, actually, which is the importance of having a demo account, which is something that IG offers. They allow you to get used to the platform and play around before you actually put your own money in there. And that is very much the focus of today is why is this important? Why is it so useful for people who want to make this journey into trading? And what do you actually get in your demo account? So, as usual, I am joined by Sean Murison of ig. Sean, thank you so much for making time for this. As usual, heading towards the end of the year, time of recording, it's sort of mid November, just off the back of US elections. So it's been a very busy time in the markets and that's of course exciting for traders and that's why we do what we do here and we want to lift the lid on the importance of demo accounts. So thank you for making timing what's been a pretty busy time in the markets.
[00:02:09] Speaker C: Great, great to be here again.
[00:02:10] Speaker B: So I think this demo account is quite a big deal. I think it's a big part of what IG offers, it's certainly the first thing I did was go and open up a demo account. Of course, as part of this podcast series. I'm very aware that a number of listeners have very much done the same. They're playing around on the platform, they're seeing what works. We've promoted it right since the start of the podcast series and it just very much aligns with, I think, the approach that you guys take. The approach that I take, which is to just help people do this in a risk mitigated fashion. There's no attempt made here to say, hey, this isn't a risky thing to do. In fact, it's been quite the opposite. I think we stress the risks almost more than we highlight the opportunities sometimes. So do you find that people kind of go this route? Do they go and start out with a demo account? Do they follow that advice? Or do people just dive straight in and fund an account and see what happens?
[00:02:58] Speaker C: A lot of people will start off conservatively, but it really does depend on the level of experience of the user. So someone that's starting out in trading is a great product.
You have accessibility to live market prices. They are generally the guys like yourself want to see what trading is all about.
They go, they open up a demo account, they press some buttons. Then obviously you have a more experienced trader who might jump straight into a live account and then run that demo account concurrently. Because you can have a live account with a demo account. You don't even have to fund that live account to have, you know, to open up a live account. It's only when you actually want to move into the real world where you need to fund that account. So demo accounts do form a big part of traders experienced and not experienced. You know, it's, it helps through that learning curve. But also sometimes people just want to test strategies. Maybe they've got some ideas of how they want to trade the market and they want to see, you know, test that in what we call paper trading environments, a non real environment.
Lots of benefits to having that practice account. Like you said correctly, it's learning about trading without actually having to take the risk of trading with real money or.
[00:04:14] Speaker B: Monopoly money as I like to call it. A little throwback to one of my favorite games when I was a kid, certainly the board game of choice for my family. So yeah, that's actually great. I hadn't thought about them running concurrently, but it makes a world of sense. You can get confident in one of the asset classes or strategies and then start to trade that with real money and then continue to experiment in your demo account with your paper money, or monopoly money as I like to call it. So that's a really clever strategy. Actually. I really hadn't thought of that at all. And it's just another benefit of these demo accounts, right?
[00:04:43] Speaker C: Exactly.
[00:04:44] Speaker B: So when accounts are being opened with ig, I know there is quite an important vetting process that you actually go through with new clients. I mean, this is something we've discussed offline as well before. You do put in a lot of effort to make sure that people who are opening accounts should be opening accounts bluntly, just because it's a leveraged product and you know, you can lose money quite quickly and without really understanding what happened to you if you don't know what you're doing sometimes even if you do know what you're doing. So this vetting process is really important. Right, and is that for, is that only for funded accounts or is it for demo accounts as well? Do you kind of allow people to open a demo and then go through the big process when it's time to put real money in?
[00:05:22] Speaker C: Yeah, so anybody that wants to open a demo account can open a demo account. They can do it via mobile device or on the website. So anyone that is interested in trading does have access to a demo account. When you start looking at a live account, obviously there's a suitability of product and so we do a basic sort of questionnaire when you're opening a live account in terms of. We've adopted it from the UK, it's called a MiFID scoring system. So it looks at wealth and experience because obviously you're dealing with credit and like you said, it is a high risk environment. So just making sure that people aren't taking their hard earned pensions and putting it into this type of trading environment or you know, if someone's unemployed and maybe doesn't have the finances to start trading. Because remember, trading is. Should form part of a portfolio. It's. It's the high risk side of that portfolio. High risk, high reward. So there, obviously there's a lot of opportunity with it, but it's. Yeah, it's not. You're not searching for yield your retirement, so it's just. Yeah, we, we think it's an ethical practice on that and so all about suitability.
[00:06:29] Speaker B: Yeah, it makes a world of sense. I mean, I can imagine the temptation. Someone gets a hot tip or they don't really have experience with this stuff, but there's a bit of desperation that has crept into their lives for whatever reason. And this stuff happens. It absolutely happens out there. And it's really great that you have the guardrails to stop it from happening because it's not a. It's not a lottery ticket. You know, you can go and buy that 10 rand lottery ticket or whatever the lottery costs these days. I actually have no idea, you know, and potentially win millions and the most you can lose is the amount you put into the lottery ticket. That's not how the markets work. Yes, there's strong upside, but it's not like that. It's not the 10 rand ticket that can win you millions. That's not how it works.
[00:07:02] Speaker C: Exactly. And that's the whole point of the demo account. So it's to recognize, it's to provide that the tools for a trader to actually develop their skills and once they, you know, feel like their skills have developed enough, they can move into that live environment. I think that's a sort of a steady and a logical approach to getting involved.
[00:07:21] Speaker B: Yes. That actually brings me very neatly to the next question I wanted to ask you, which is around the functionality on a demo account, those tools that you speak of. Because from what I've seen of the demo account that I opened, it seems like it's pretty much, you know, the whole platform effectively that you can get access to. You can really see how it all works, all the different instruments, all the different asset classes, local, even offshore. You know, that's kind of baked in there as well. Is that an accurate statement that a demo account is literally just normal account minus real money in terms of functionality?
[00:07:52] Speaker C: Yeah, so that's exactly it. So you are getting access to live market pricing, you're getting access to fundamental data, those technical analysis tools. Because we obviously talked a lot about technical analysis, live market news feeds, we even have functions like client sentiment. Data shows you how traders are placed in any particular market. So maybe they're trading Sasol shares, for example. You can see how many, how many traders of the view that they expect the price to rise and how many expect the price to fall and things like your signal. So everything is there except the real money.
It's monopoly money and you'd obviously need to treat it as such. So there's not the emotion of real money, but there is the accessibility to information. So a democratization of information and you have access to that whole suite of tools. Yeah.
[00:08:41] Speaker B: So let's talk about some of the emotional side of it as you've kind of referenced there. Because obviously losing real money stings much worse than in a demo account. But I think people are also smart enough to think, you know, this could have been my money. Or alternatively, when they have a great trade to also go, you know, wow, I wish this was my money. It's almost a bit like playing golf, which is, you know, that, that toxic relationship that I have with that sport where you go and hit that one great drive or that one great approach shot or that one lucky putt that keeps you coming back for more, never mind the others that went into the trees or worse. And it's a little bit like that with trading, I guess. So it certainly can be. And emotionally, I imagine that does cause a lot of people to perhaps lose heart at the demo stage. You know, they just see a trade go really badly and they think, wow, I don't know if this is actually for me, you know, maybe it's time to kind of quit before I even begin. What would your advice be to someone who has had that really difficult experience in the market at demo account stage to get them to kind of see that there's more to it than that, you know, that there's a lot to learn and there's a lot of opportunity and one bad trade doesn't make your whole story.
[00:09:44] Speaker C: Now, I'd say that if you, if you're looking at trading, you know, is it a way that. What is the goal of your trading?
Is it to supplement an income?
Now, if that's your goal, you should treat it as a business and know that in any type of business, you know, you have your income and your expenses. And I think psychologically we can react quite badly to taking a loss in the market and think, oh, we've performed poorly, and then obviously be quite euphoric to when we've done well. But if you start removing the negativity, so know that you're not going to get it right every time, but you will take losses and view that if, if this is a type of business and a way to supplement income, maybe refer to a loss as one of your expenses, sort of a barrier towards making a profit. But if you look at it in a business sense like that, you can remove the negativity of the idea of loss.
That demo environment is there, like we said earlier on, just to help improve that skill set. And so if you just keep working at it, take your time. I experience it slightly different though, I have to be honest. If we start looking at, I think quite, quite often when you look at the demo environment, you'll see someone will take a loss and say, oh, I wasn't Concentrating, I wasn't paying proper attention. And then when they do well, they maybe get a bit of that euphoria and say, oh, this is actually quite easy, maybe I should move to a live environment. But be realistic about your demo experience. Treat it like it's a real account and just build that skill set.
And then hopefully when you move into a lab environment, you know, you can carry this skill set through and make a bit of money.
[00:11:14] Speaker B: Interesting. Okay. Because I mean, normally you talk about people being risk averse. That's how we understand people to be and generally hate taking a loss and it almost ruins some of the profits for them. So it sounds like the experience that you're having with a lot of clients is almost a bit different to that. They're actually so excited about when the things go well that they are happy to stomach some losses along the way. And yeah, I guess that is more the mindset you need. You need to be optimistic about what you can achieve. I guess you've also got to be quite careful to manage the euphoria that you don't start just chasing trades for the sake of it. You know, it almost becomes like a, like your next hit on a drug, you know, it can become quite dangerous and it can lead you to make some pretty rough decisions and investing, I guess, in your portfolio. And it happens to me sometimes I'll look and say, okay, across all these positions, you know, there's always going to be a couple that really didn't turn out the way you hope. And then it's, it's very irritating. And you kind of look at that and go, you know, if I put this money in the bank, I would be up 7% or 8% in the past year. Instead I'm 20 in the red. But that's when you have to remember it's a portfolio. So across the whole portfolio, how have you done? You can't pick out the one or two individual positions that went badly and then say, oh, look, you know, this is a terrible idea. Why did I do this? Et cetera, et cetera. I really like your analogy of treating trading as a business. There will be good years, there will be some bad years, there will be some expenses along the way, there'll be some excellent months. I mean, as a business owner myself, I guess it resonates particularly well. But that's a good way to think about it because otherwise you just attach too much to the losses and you don't see them as part of the journey. They're almost a necessary evil. You can't have all the profits without having some bad trades along the way, because otherwise there's no risk. And if there's no risk, there would have been no reward in the first place.
[00:12:53] Speaker C: Right, exactly. And learn through that process, what am I doing well? What am I doing poorly? How could I improve? Use it as a continual improvement process. You know, learn where your weaknesses are and then work on those. You know, if you have a problem getting out of a trade, you know, maybe you're emotional when it's going against you, maybe you want to hang on. You realize, well, maybe I only prepared to risk this amount of money and I was going to stop, use my stop loss here. But instead what you do is you pull it and you wait for the market to recover. No, if you identify a weakness, for example, as not being able to take a loss or actually implement the loss that you had prescribed to the trade, then use an automated function like that, IG's sort of automated stop loss. We can put it in the system. So automate the process if that's a weakness of you. Just a. That's just a small example of, you know, developing that skill set. Knowing it's not just about pressing buttons, knowing how you react emotionally to different market scenarios with a favorable or unfavorable.
[00:13:55] Speaker B: Yeah, that's great advice. The emotional side of this is huge, actually. And again, that leads me very nicely into the next thing I wanted to ask you, which is, you know, what your approach would be or what you would generally recommend. It's obviously very generic thinking here. It's not per person, just in terms of how long a demo account should probably be used for. So you've actually talked there about using it concurrently with a live account to keep testing new things. I'm not really asking about that. It's more, you know, you open a demo account, you start trading an index, and now you're ready to move into doing it with real money. I guess it's a bit of a balancing act because if you do it too quickly, you probably haven't learned enough and you might have some really bad trades that actually sting you. But I guess if you do it for too long in a demo environment, it's also a little bit easy to become desensitized to the outcome. You know, the bad trade, as you say, it's, oh, don't worry about it, you know, it was just a journey along the way. That's a lot easier with fake money than with real money, right?
[00:14:49] Speaker C: Yeah. I think the goal when you are trading with that is firstly to Prove to yourself that you can develop some form of consistency in trading, that you can take regular profits out of the market and you learn how to control your risk. As soon as you start looking at those, then you can start thinking about progressing to a live account. Now, when you do move to a live account, I think the next thought process there is really you're going to be tested with emotions because now all of a sudden you have that emotion attached to real money. You know, watching that real your bank balance going up or going down, depending on how well you're doing. And maybe you've got a good strategy, but in that lab environment, do you have the discipline to follow that strategy and to implement, you know, your risk protection measures, to take profits at the right time, to let winners run when they need to be maximized. So develop consistency in your skill set once you've on a demo environment would be my advice there. Once you've developed that type of consistency, move it into a real environment. In that real environment, then see how the trading goes when you have real emotion attached.
[00:15:54] Speaker B: Yeah, I love it. That's really good thinking. So I think let's move on from that. And just as a passing or last comment rather, about demo accounts, just go open one, go check it out. If you've been listening this far into the season and you haven't yet opened a demo account, then it really is time go and check it out. And if you've sort of landed on this show as your first one, you know, just go and get it open and then go listen to all the other shows in the series because it just makes it so much more real. It's very important to actually see the stuff on your screen and make some of the mistakes. And it's easy to think, oh, I have experience in the market, I'm not going to make mistakes like this. One of the silliest ones I did in the demo account was that PEARS trade, where I didn't check that both instruments were available before I put the trade on. So it was two stocks, because again, I just can't help myself coming at it from a stocks perspective. It is. My background is single stocks and I didn't check that both were available and one is not liquid enough for CFDs. And so one was available, one is not. But by then I'd put on one leg of the trade and I mean, it's such a silly thing to do, but it's a mistake that you kind of need to make in order to look back and say, oh, now how did I get that so wrong. Rather do that in a demo account than in a real account, definitely. So go and get it done, I think. Sean, let's move on to the technical side of the show. As we've done for the past few shows, we end off with some text. And as always, I have a bit of a look through the excellent IG Markets Academy to see what grabs my eye. And in this case it was an article about breakouts and fakeouts. I haven't actually seen the fake out terminology before, so I actually really enjoyed that. I know what a breakout is. It feels like something that you maybe look back on and kind of point out, hey, that was a breakout or that was a fake out. It's less predictive. It's more, you know, did the stock actually hold that break or did it kind of go back into the range it was in, rather than a double top, for example, which is a predictive pattern. And by the way, if you want to see an amazing double top, go and check out the Richemont share price from 2024. In case you're listening to this later, Sean, I think I sent it to you on WhatsApp the other day. It is quite a spectacular double top. Unless I get too distracted by that. Let's go back to breakouts and fake outs. It's not a predictive tool, is it? It's really just a way to describe what happened on a chart.
[00:17:59] Speaker C: So when you talk about breakouts, we talk about a movement in price and it's generally when it takes out a key level. So it could be a trigger for entry into a market because that's where we think the market is showing a new commitment to a direction, whether it be up or down. So a breakout is something can be applied to chart patterns, although it's just confirming a chart pattern. So we've talked about head and shoulders, double tops and so and we talked about a neckline or a key level of support and resistance. And a breakout is just be a confirmation of that pattern as a. As that price moves below that psychological level and commits to a new direction or reestablishes the previous directional move. So that's a breakout. Now when we start talking about a fake out, it's really saying, oh, this is. This breakout didn't actually work the way we wanted to. But there's other technical tools that you can do to try and help validate those signals. But breakout is just the price moving above or below a key level in the market, suggesting a new directional move.
[00:19:02] Speaker B: Fake out is a Bit. I mean, dead cat bounce is another term that gets thrown around, right? So that's a stock that's been in a declining trend. It suddenly breaks higher. And the question is, is it, is it a dead cat bounce? Which is an awful description, you know, for, for people who like cats like us, but it is what it is. We'll, we'll, we'll just, we'll have to go with it and you know, is it a cat that's just bouncing the last couple of times before it meets a very untimely end, which I think is the awful origin of the story. I try not to research any further or further questions because I don't want to know the answer. But that would be an example of a fake out, essentially, right? It's kind of coming out of that train, but it actually isn't. It then gets back into that declining trend and away it goes.
[00:19:39] Speaker C: Look, markets don't move in a, in a straight direction. So when we talk about it, you know, the proverbial dead kit bounce, saying, let's say the market's tanked, the market's fallen, like really, really aggressively.
It doesn't fall in a straight line. So it might have broken out in direction, given a bit of relief, in the opposite direction before it continues in that preceding direction. So, yeah, slightly different to breakouts, but it could be applied. It's just a term that. Is the market changing direction now or is it just a dead camp bounce? So when we see a dead cat bounce, if it does turn out to be, that means that no, it's not changing direction, it's actually going to continue in the same direction.
[00:20:16] Speaker B: So, Sean, last question for this show, and it's a little bit around technicals as well, but also just trading tools, as you mentioned earlier, you can use other tools and that's just around volumes alongside price action. Because that's quite an important thing, right? Is a price can move, especially on a very illiquid stock, a price can move 20% on weak volumes. And then you've got to be super careful how you interpret that. Now, it's a bit different on an index, for example. You're not going to have such a silly move on no volumes. But I think it still matters to see the extent of volumes behind a price movement. And maybe that helps with figuring out whether a breakout is real or a fake out. Because my understanding is the more volume you have behind a specific move, the more you can trust that move, the more you can believe that maybe it's real because more people were pushing it that way. Is that a decent summary of how you would use volumes?
[00:21:06] Speaker C: Yes, I think in other but still similar words, when you look at a breakout, if we reference to a breakout, if we see half volume, when the price breaks a certain level, it's alluding to the sustainability of a move. You know, there's a lot more momentum, there's a lot more activity pushing the market in that direction. So if we see high volume on a breakout, we would assume that there's more sustainability in the market continuing in that direction of the breakout. If we see low volume on that, it might be seen as having less credibility, less support for that directional move. So maybe it's not sustainable and maybe we could end up with that fake out scenario.
[00:21:46] Speaker B: Perfect. Thank you. I think that brings us to a close for this week. We only have a couple of shows left for this season. For those listening to this, basically as it comes out, they'll be done and dusted before the December break. So lots and lots of content to sink your teeth into. And we really hope that this has helped with getting you out there and giving you that confidence to go and open up a demo account and maybe even moving to a funded account if you feel like it's the right thing for you. So do join us for the last couple of episodes of the series and then of course, we really welcome your feedback. You know, what do you wish we had talked about? What would you like us to cover? What would you, you know, what did you enjoy? What did you go back and listen to again? So thank you for being here for giving us your time, especially at this time of year. Then start to wind down. Sean, thank you so much. And we will do another one of these soon.
[00:22:31] Speaker C: Great. Thank you.
[00:22:35] Speaker A: In our gorgeously diverse country, there really is a new reason to trade every day. Current affairs to political news can make the markets move and cause volatility, which can be advantageous to a trader. Diversify your portfolio by opening a trading account with IG and explore the possibilities of CFD trading or practice your trading skills on an IG demo account.
