CFD TRADING: Global financial markets are a source of rapid change, from extreme volatility to break out patterns and market lulls. A CFD is an over-the-counter derivative product often used in correspondence with or as a hedge against market change.
Trading market movement can be both beneficial and challenging, particularly in periods of accelerated change.
A CFD facilitates participation in underlying market movement without owning the physical asset. Participation involves a plethora of asset classes from major stock markets right through to CFDs on local indices such as the Singapore Blue Chip index.
Vast choice is supplemented by ease of access and frequency. Most CFD providers offer access to global underlying markets via a single platform. This allows traders to tap into global change 24 hours a day by shifting focus to open markets.
As a relatively established financial product, traders can choose from a wide range of platforms to fit their requirements including mobile specific platforms, Meta Trader 4, Direct Access platforms, trading terminals and APIs.
A CFD is a leveraged product and you can therefore magnify exposure to a financial market using a relatively small amount of overall capital. However losses are also magnified. If a trade is placed using leverage and the market moves against the trade, loss is greater than a non-leveraged investment. When trading this product it is crucial that appropriate money management techniques are applied. Losses can exceed your initial deposit.
Tools are available to support trades and risk management including the option of contingency orders, stop losses, guaranteed stops and price alerts.
During times of price fluctuation traders often look to defensive strategies to protect existing positions. CFDs offer the possibility to adopt an opposing position and are therefore used by investors to hedge existing positions. Hedging can be implemented by taking an opposing position in a correlated market or by buying/selling the same instrument to offset risk.
A combined understanding of product set, market change and risk factors will assist when tackling the benefits and challenges associated with this form of trading.
NZIAS is New Zealand International Accounting Standards.
OWNERS EQUITY RATIO see RETURN ON STOCKHOLDERS EQUITY.
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