Why Trade CFDs on a Falling Market with City Index?

LONDON, May 3, 2012 /PRNewswire/ --

Unlike more conventional forms of trading, a City Index CFD trading account enables investors to potentially profits from markets that are both rising and falling by going long and short on a market's future price movement.

CFD Trading with City Index

The key benefits of trading Contracts for Difference with City Index include:

• Ability to go short and hedge your portfolio
• Leveraged trading allows you to take a position for a small initial deposit*
• Free from Stamp Duty**
• Access to over 12,000 global financial instruments

How to Trade CFDs on a Falling Market

Going short and selling

Imagine that you think a market's price will rise; by trading CFDs, you decide to go long and 'buy'.

As a result, with every point that market rises - you net a profit.

However, you had failed to fully analyse your chosen market and were unaware that a major report was being released in the coming days - a report that was deemed highly detrimental to that market's share price.

As a result - you had been wrong and the share price starts to fall, resulting in a loss.

In the same way that you profit from each point the underlying CFD market rises on a 'buy' trade; you also incur a loss from each point that it falls.

Therefore, had you analysed your chosen market more thoroughly, you'd have known that a detrimental report was due to be released and would have decided to go short and 'sell'.

In this case, as you were prepared when the market started to fall - you net a profit for each point that it dropped.

Remember, however, that the market could have turned against your 'sell' position and actually risen; meaning you could have incurred a loss for each point that it rose. As you were prepared, you cut your losses and exited the trade as soon as you realised that the market had turned in the opposite direction.

Top Tip of Trading CFDs

Looking at the above example, it is important to remember that in the latter example; you were prepared for the report to be released and could exit your trade without letting your losses accumulate.

A common mistake among new traders is that they let their losing trades continue to run in the hope that the market will eventually turn in their favour, helping to ultimately net a profit. However, by the time they realise their mistake and close the trade, they accumulate significant losses.

Our top tip for trading CFDs is to fully understand your market through technical and fundamental analysis; as well as utilise CFD risk management tools through City Index.

* CFD trading is a leveraged product which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

**CFD trading in the UK is free from stamp duty, with the exception of Irish stocks, which are charged 1% of the notional trade value. This value is, however, refundable if you trade out within 30 days.

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.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, financial spread betting.

We constantly look to improve the performance of our platforms and expand our range of services. The result is our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. Visit http://www.cityindex.co.uk/ for details.