CFD Education Series – Part 2

Top Traders protect their portfolio by hedging with CFDs


How can CFDs complement my existing investment portfolio?

Typical investment portfolios rely on the appreciation of stocks, bonds, property and other assets for the investor to make a profit. However, there are many macroeconomic events that can quickly cause a downturn in the market, putting your investments in jeopardy.

When market volatility hits, CFDs provide you with the ability to hedge your portfolio exposure quickly by going short on a related stock or index.


When oil prices slide, chances are that oil producers and related plays will be under pressure. CFD traders can consider shorting stocks such as SembCorp Industries, PetroChina, or Santos.

Similarly, commodity-related shares and futures can react adversely to the release of weak economic data, especially from China. Such stocks include miner Fortescue Metals which makes over 90% of its revenue from China, or copper contracts which is are a play on industrial activity.

A stock that has been the hot favourite for a while could also become overbought and struggle against technical resistance levels. A trend reversal will present an opportunity to short.

The same principal applies to indices. If you have are long on a basket of US / SG / AU equities and some bad economic news hits, you can hedge your risk by shorting a related stock index. E.g. Wall Street, Singapore Blue Chip or Australia 200.

What do retail investors need to know to minimise the risks associated with CFD trading?

When you first start trading, it is recommended that you start slowly, trade familiar products, actively monitor your account and control your risk with stops and limits:

Start slowly, and build your skills and expertise

If you’re new to leveraged products, you can get used to how leverage works by trading in small sizes while you develop your understanding.

New clients can trade at reduced minimum trade sizes for two weeks and reduced commissions for six weeks with our introduction programme.
Understand the markets you want to trade on Ensure you understand the factors that influence different markets so you can base your trading strategies on the most relevant information.

Our education section covers each market we offer in great depth, and our experts provide regular data and commentaries in news and analysis.

Monitor your open positions

Ideally you’d be able to constantly monitor your open positions and react to market movements. Practically, however, this is often difficult.

Our platform is available via our free app, so you can monitor trades on your mobile or tablet. You can also set up price alerts to notify you when specific prices are reached.

Use stops and limits to protect against sudden market movements

Sudden market movements can cost you if you aren’t able to react immediately. Automated risk management tools can save you time and money.

Our risk management tools protect you from sudden market movements and let you lock in profits when the market moves in your favour.

These include stop losses, guaranteed stops, trailing stops and limit orders.


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