Gaining ground

It is often said that a CFD traders’ best friend is market volatility as a result of their ability to make money in both rising and falling markets. The once relatively unheard of investment tool has proven itself to be ideal in our turbulent and uncertain times, with record numbers of retail clients opening accounts with a view to adopting a more pro-active investment strategy using leveraged products. In a similar fashion to ordinary share dealing, CFDs (or contracts for difference) allow private investors to open long positions on shares which will benefit from rising markets. However, what makes CFDs very different is that a client may sell short of the market which allows profit to be made from a falling market. Private investors have become increasingly more sophisticated and are managing to adapt to short selling with relative ease, which has allowed them to protect their long term portfolios from downturns in the market as well as make speculative trades.

Due to their increased popularity, CFDs are offered on a broad spectrum of shares, commodities, indices and currencies which has given investors easy access to markets which were previously only available to professionals.
Investors can now focus their efforts on the areas of the market which they feel offer potentially the best returns.
Many investors have been trading UK blue chip stocks during the recent period of volatility and have benefited from being able to sell short. As a result of liquidity fears in the UK and US banking sectors, banking stocks have been a favourite short trade for many CFD traders.

Profiting from inflation
Over the last couple of years there has been a shift into trading commodities and precious metals using CFDs which has given private investors the opportunity to not only protect themselves from rising inflation but to actually profit it.
In light of increasing fuel prices, inflation, and the increasing prices of basic foods, investors have been getting
exposure to these sectors and have benefited from rises in commodities such as crude oil or wheat. Gaining access
to these commodities is not difficult and can be done via any good CFD trading house. Some investors have even
complemented such a bullish strategy on commodities by taking a number of short positions on blue chip equities.

Managing the risks
Although CFDs are ideal for trading during periods of volatility, there are significant risks involved and investors should only ever become involved once they fully understand the risks versus the rewards. CFDs are a form of margin trading, meaning that when an investor opens a trade, onlya small deposit based on a percentage of the underlying trade size is necessary. For example, if an investor wanted to buy long €10,000 worth a stock such as Barclays or Vodafone, the broker would normally only require an initial deposit of €1,000 (or 10 percent margin) to hold the position. If the price of the stock rose by five percent, a profit of €500 would be made; if the stock was to fall five percent a loss of €500 would be felt. Relative to the initial deposit, this five percent movement corresponds to a 50 percent profit or loss and thus making CFDs a high risk/high reward investment product. Blue Index offers an advisory service specialising in trading CFDs. The service focuses on advising clients on methods of managing the risks associated combined with offering industry leading live trading research specifically designed for CFDs. Blue Index clients are advised on the use of both standard stoploss orders and guaranteed stop loss orders to reduce the risksof rapid moving markets.

Blue Index Research Service
The Blue Index research service provides clients with a comprehensive approach to understanding the UK and US
equity markets, and also provides insight into the global currency and commodity markets. Blue Index clients receive a morning email which runs through the latest market news, a US report and daily live trade ideas, combined with regular news updates delivered by sms text to your mobile phone. A free 15 day research trial of the service is available at www.blueindex.co.uk together with a downloadable guide to CFDs and a trading simulator where you can practice trading CFDs risk free.

For further information tel: +44 207 398 2558;
email: cfds@blueindex.co.uk;
www.blueindex.co.uk/risk-warning

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