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.
CFD trading is flexible enough to allow you to not only profit from rising markets (going long) but falling markets (going short) too.
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. Your profit or loss is determined by the difference between the price you buy at to the price you sell at, multiplied by the amount of contracts you hold of course. 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.
The premise of forex trading is simple, you ‘buy’ if you think the first-named currency in any quoted pair is going to strengthen against the second currency. And sell if you think it likely to weaken. 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.
An example of this would be:.
GBP/USD
In what would turn out to be one of the most interesting and turbulent days in British politics, at least since the last hung parliament in 1974, sterling started Monday 10 May relatively buoyant. 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.
This must have served as a reassuring reminder to many traders and investors that not all crucial monetary policy decisions are made by the government in the UK.
Sterling rose to be worth 1.502 dollars at one point. 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.
Most agreed that the process for any two parties to agree to form a stable government that is in the best interests of the UK public will be a difficult one.Sterling would fall back to trade around $1.485 as currency traders voted with their fears. 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.