FAQ

What are some of the advantages – and risks – of trading CFDs instead of shares?

By City Index Unlike traditional shares, CFDs are traded on leverage. Leverage lets you trade the markets using a small fraction of the total trade value. For a smaller initial investment you can take the opportunity to profit from market movements and diversify your trading strategy and portfolio. Potential gains can be magnified, as you…

How do I maximise returns using share price divergence

I am happy with the pairs trade concepts but everyone seems to talk about stocks that have close /familiar relationships. Is there some advantage in associating a long positive momentum position with a short negative one even when they may come from different sectors of the same market? As an example I have recently associated…

When is the best time to trade CFDs?

Question: I was wondering if you could tell me the best times of the day to trade CFDs.  Are there certain times of the day that breakouts would be more likely etc? Response: Knowing what time of the trading day presents the most opportunities is particularly important for day traders. A day trade has a…

What is momentum trading? And how does it work?

For the purpose of this article momentum refers to the rate of acceleration of a security’s price ie how quickly it builds up speed in terms of price. Healthy price trends tend to display strong momentum while weakening price trends often have decreasing momentum. Momentum trading aims to identify explosive share price moves for the…

How do I calculate my gains and/or losses when I sell a CFD?

This is a good question for anyone who is considering using CFDs within their trading strategy. Equity CFDs not only replicate a share trade but have the additional benefits of leverage and the ability to go short. Using CFDs it is possible to profit from a rising or falling market by only making a small…

What happens to a CFD short position during a capital rising like a rights issue or placement?

Response: We will use a hypothetical example to illustrate. Ronnie undertook research on the Australian market and following his research he took a negative view of XYZ Department Stores Ltd. He believed the future for XYZ was quite bleak because their buildings were run down, staff were currently striking due to a pay dispute, and…

How do I select the size of each trade?

Hello Experts – should I always trade the same size or different sized amounts, and should the size of the trade depend on the risk? Can you give me ideas of how other traders deal with this. Your help is appreciated. Clive Dear Clive and readers, Your question touches on a concept that is one…

What happens if your CFD stock gets suspended from trading or worse, goes under?

What happens to your CFD trade if the stock that you’ve gone long or short gets suspended from trading or worse, goes under? In the Australian Securities Exchange (ASX), listed companies can either voluntarily or be ordered by the exchange, to have their securities placed in to a status where trading is restricted. This status…

Can you explain pairs trading

If I find two highly correlated stocks and short one while going long to the same dollar value on the other is this a dollar neutral transaction? If I go short $100 on one CFD and long $100 on another shouldn’t my account be the same (less fees, of course)? Also I’m expecting the shares…

What does dividend stripping mean?

‘Dividend stripping’ traditionally has been a popular strategy with active investors, looking to generate franked income via the purchase of physical shares prior to a declared dividend being paid by a company. The strategy is usually implemented by buying the shares several weeks before the ex-dividend date on the premise that shares often rally as…