Trading CFDs can help you profit from falling (going short) and rising (going long) markets.

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.

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

Here’s a recent example.

GBP/USD

On Monday May 10 the pound started the day relatively strong against the dollar, but the day would turn into one of the most turbulent days in British political history. There were two events which had buoyed sterling in early trading.
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. So too the Bank of England’s decision to keep the key interest rate and the quantitative easing programme as they are.
The latter would have calmed traders, reminding them that not all key monetary policy decisions in the UK are decided by the government.

Sterling rose to be worth 1.502 dollars at one point. However, when we reached the halfway point of the US trading day, the British PM Gordon Brown announced his willingness to step down as leader of the Labour party. 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.

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. 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.

Read more on Tough Times For The Pound – Forex CFD Trading Explained…