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.

CFDs explained

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. The range of markets you can trade cfds on is extensive, from forex to shares to indices.

Let’s take a look at forex and a recent example.

Forex trading

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.
And sometimes the fear of what might happen has a greater affect than what actually happens.

Here’s a recent example.

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 deal between the IMF and the EU for a support package worth almost $1 trillion to prevent the Greek crisis from spreading across the eurozone had a positive affect on sterling. Meanwhile the Bank of England announced no change in the key interest rate and that the asset purchase scheme will continue.
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. Certain commentators argued that this was evidence that a pact between Labour and the Liberal Democrats was becoming a distinct possibility, and many not only fear that such a coalition would be short-lived but also that the tough measures that are required to cut the UK’s budget deficit would not be carried out.

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. It will be interesting to watch what happens to sterling and the UK as the political landscape continues to shift around.

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.