How you can hedge your portfolio using CFDs

Julie Brownlee, Fsp Invest, 09 Oct. 2014

Tags: cfd, cfds, contracts for difference, hedging, hedging using cfds,



You may think that trading products like contracts for difference (CFDs) are only for making speculative calls on the movement of share prices.

But CFDs have other uses. You can use CFDs to hedge your portfolio.

So how can you use CFDs to hedge your investment portfolio?

Read on to find out…



A brief introduction into CFDs


A CFD is an arrangements between two parties to exchange the difference between the closing price of a contract and the opening price of a contract.

You can go long (potentially profit from a rising share price) or go short (potentially profit from a falling share price).

What makes CFDs attractive to traders is they’re geared products. This means there’s a money multiplier effect at work. This can magnify your profits (or losses) by up to ten times.

It all comes down to trading on margin and using borrowed funds to purchase a financial instrument.


The ins and outs of using CFDs to hedge your portfolio


If you have a long-term investment portfolio, during times of market volatility you might want to protect your positions.

What you can do with CFDs is short the CFD on the share you’re concerned about. Or opt to short a stock market index best reflecting your positions.

Doing this is a short-term solution during times of market volatility.


An example of hedging in action


Let’s say you have an ample holding of Sasol shares. As the oil price is under pressure, you think the share price is going to fall.

So what you could do is short Sasol CFDs to hedge your position.

If Sasol does fall in price, offsetting the losses you incur on your actual shares will be the profit you make in your short CFD trade.

Once you think the share price fall is over, you’d close your short CFD positions.

By shorting Sasol CFDs, you’re covering yourself for losses in your investment portfolio.

So there you have it, how you can hedge your portfolio using CFDs.

*********** Advertisement ************

DOUBLE your wealth with these extra ordinary investments

We’ve uncovered an incredible system that combines the greatest investment strategies of all time with a highly technical Blue Sheeting analysis to help you make millions from the stock market with almost zero effort!

The results have been nothing short of PHENOMENAL!

This strategy constantly beats the markets every year. By September 2014, when the JSE All Share Index was at a mediocre 51.23%, our Stock of the Month portfolio was up 104.60%.

So, if you want to double your wealth… Let me show you how!

***********************************


Related QA

Pic
lenita.fourie777 asked:
I have lost PLENTY in Binary companies. I have lots of dept. I only have R 5 000 available now to try and make up some losses. If everything goes [read more]
Published at 23 Feb. 2018 in: Trading 1 Answer
Pic
joe9976 asked:
I have bought the South African Investor Crypto Wealth Package so that I can start investing in Bitcoin. Sam Volkering recommended opening an account [read more]
Published at 23 Feb. 2018 in: Trading E-mail 1 Answer
Pic
deongt asked:
Hi Timon. I am currently subscibed to Rhst and have a broker acount with Gt247. I,m thinking of subscribing to Pick pocket trader. Can I use the same [read more]
Published at 21 Feb. 2018 in: Trading 1 Answer
Pic
emmamaya020 asked:
Hi Timon, I am directing this question to you out of great concern from within. I recently subscribed to RST tips for making extra profit and on [read more]
Published at 21 Feb. 2018 in: Trading Trading tips 1 Answer
Pic
e7469 asked:
I already have an active old trading account with GT247, can I use this account? It was not 1 of the 2 brokers you recommended. Sue Neumann [read more]
Published at 20 Feb. 2018 in: Trading Broker firms 1 Answer

Related articles:


Latest:

Comments
0 comments



 
 


Youtube Twitter Facebook

Connect with us:    

POPULAR TOPICS
  • Accelerated Investor
  • Accessories
  • Accountancy
  • Accountancy services