The best and worst performers on the ASX this week

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Australia is pretty lucky when it comes to the quality of our stockbrokers although given the large amount of money that can be made in this industry, there is always a small minority that will take advantage of the unwary.

This week, the Federal Court ordered Forex Capital Trading to pay a $20 million dollar penalty and the sole director to pay $400,000 for misconduct and breaches of his duties in what has been described as a Wolf of Wall Street type culture amounting to systemic unconscionable conduct.

Trading in foreign exchange and other leveraged markets, such as CFDs, by retail clients has increased substantially since the COVID-19 pandemic hit our shores last year largely due to the commission-free propaganda surrounding these products.

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What most retail clients fail to understand, however, is that when they trade with a broker who is a market maker (where they make the market), they decide on the spread between the bid and ask price.

Typically, this spread is much larger than a broker who mirrors the underlying asset. What this means is that the profits you could make amount to a lot less and your losses are much larger when trading with a market maker. So while it may be commission-free, you are paying one way or another.

Another fact that retail clients fail to understand about these products is that the money deposited into client trading accounts often becomes part of the broker's revenue due to the client's lack of knowledge and experience when trading these markets. Imagine a business model where you could predict in advance how much profit you could make based on the amount of money deposited into client accounts.

This is why I advocate that traders should get educated about how to trade in leveraged markets, so they are abundantly clear about the risks of trading these products. While I applaud ASIC and the courts for their continued efforts in shutting down the bad apples in our industry, the responsibility firmly lies with each and every trader to do their research and be suitably experienced and skilled before attempting to trade these high-risk markets.

Best and worst performing sectors this week

The best performer this week is Energy up more than 7% followed by Utilities up more than 4% and Materials up more than 2%. The worst performing sectors include Healthcare, Information Technology and Consumer Discretionary, as they are just in the red so far this week.

The best performers in the ASX/S&P top 100 stocks include Worley up more than 13% followed by Santos up more than 11% and Origin Energy up more than 9%. The worst performing stocks include Link Administration down more than 6% followed by AMP down more than 4% and IDP Education down more than 3%.

What's next for the Australian share market

In a strong move not seen since late last year, the All Ordinaries Index is looking bullish after two weeks of solid gains, which is a great sign. Over the last 11days, the market has only traded lower than the previous day on two days and our market has continued up to achieve a new all-time high.

Like everyone, the bull in me would like to see this last forever, however, we know that all markets eventually fall away. Right now, we are getting close to the target I mentioned last month of 7,600 points, and while the market could trade higher to around 7800 points before it falls away, the realist in me suggests that we should expect the market to peak and start to fall away anytime soon.

My preferred sectors this year still include Energy, Materials and Financials, as there are some good opportunities with the bigger blue-chip companies, That said, I would caution those with a fear of missing out right now because lately I have seen investors buying into stocks that had previously risen strongly only for them to enter just before they fell away.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.