How Quick Thinking Singapore Traders are Protecting Their Investments by CFD Trading
SINGAPORE, February 1, 2012 /PRNewswire/ --
While many investors will watch their shares devalue or quickly sell them during times of economic downturn, smart traders are protecting their portfolios by trading CFDs (Contracts for Difference). Here City Index Asia shows how to hedge your position or start short selling and potentially offset losses through CFD trading.
In the past the only way to maintain a portfolio of shares through a stock market downturn was either to take a short-term hit in their value, or sell the shares before buying them back at an expected lower price in the future.
This however may reduce the potential longer term value of your holdings if the market does not fall as low as you expect, making it even more costly to buy back the shares, while you would also have to pay more broker commissions for the additional trades.
One increasingly widespread way to ensure your portfolio isn't damaged by economic volatility is to hedge your positions by trading CFDs. A CFD, or Contract for Difference, is an agreement between two parties to exchange the difference between the opening price and closing price of a contract, and are often used for hedging investments.
You can use CFDs to offset losses in your portfolio by short selling or 'hedging'. Imagine that you hold SGD$5,000 worth of SingTel shares in your portfolio. You can short sell the equivalent of SGD$5,000 worth of SingTel shares through a CFD trade. Should SingTel share prices then fall by 5% in the underlying market, the loss in value of your share portfolio would be offset by a similar gain in your short sell CFD trade. Conversely, a loss in your CFD trade would be cancelled out by an equivalent gain in your portfolio. This enables you to retain your portfolio throughout volatility without incurring any significant loss to its overall value.
There are many more benefits to dealing in Contracts for Difference including leverage - which enables you to trade by paying a small percentage of the total value of the contract - the ability to go long or go short and being able to trade across a wide range of markets.
Protect your investments by hedging or short selling and sign up for a CFD trading account at City Index Asia at: http://www.cityindex.com.sg/cfd-trading/
Trading CFD and FX on margin carries a high level of risk, which may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits.
About City Index:
Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.
City Index is a leading global provider of margined foreign exchange, CFD trading and in the UK, spread betting. As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. To learn more visit: http://www.cityindex.com.sg/
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