The Cloud Over The UK And Sterling And How To Benefit By Trading CFDs
More and more traders are seeing CFDs (Contracts for Difference) as an effective addition to their portfolios. Perhaps an explanation for this would be because CFDs are a margined product, which means for a small initial outlay you can achieve leverage of up to 20 times what you originally put down.
Trading CFDs can help you profit from falling (going short) and rising (going long) markets.
A CFD is an agreement to exchange the difference in value of a share at the time it is opened and at the time at which it is closed. The amount of money you make, or lose, is determined by the amount of contracts you hold multiplied by the difference in price at which you opened and the price at which you closed. From shares to forex to commodities the range of CFDs you can trade is expansive.
Let’s take a look at forex and a recent example.
Forex trading, or currency trading is the most popular and accessible market to trade on in the world.
Forex CFD trading is simple, if you think the first currency in the pair will strengthen you ‘buy’ and if you think it likely to weaken you ‘sell’. The sheer amount of volume of trading that happens on the forex markets means that they are the most sensitive to changes in market sentiment in the world.
The actual fear of what might happened sometimes has a greater influence than the actual event itself.
Here’s a recent example.
GBP/USD
On Monday May 10 the pound started the day relatively strong against the dollar, but the day would turn into one of the most turbulent days in British political history. Analysts concluded that, against the back drop of political turmoil a couple of events had bolstered the pound.
The $975 billion support package agreed by the EU and the IMF to ensure that the troubles in Greece wouldn’t spread throughout the eurozone had a positive affect on the pound. So too the Bank of England’s decision to keep the key interest rate and the quantitative easing programme as they are.
The latter would have calmed traders, reminding them that not all key monetary policy decisions in the UK are decided by the government.
At one point the rising pound was worth $1.502. When the UK’s PM Gordon Brown announced his future plan to step down as the leader of the Labour party things changed, and quickly. Analysts argued this was evidence that coalition negotiations between the Liberal Democrats and the Conservatives had stalled while highlighting the growing prospect of a possible alliance between the two parties who had performed poorly, relative to the Conservatives, in the recent election; Labour and the Liberal Democrats.
What most people agreed on was that the process of getting a working government in the UK was becoming increasingly protracted.Among these fears sterling was pegged back against the dollar at $1.485. With the coalition talks continuing, and the spectre of a second General Election hovering, what does the future hold for the UK and the sterling.
Remember that CFDs are a leveraged product and can result in losses that exceed your initial deposit. Trading CFDs may not be suitable for everyone, so please ensure that you fully understand the risks involved.