Basic Knowledge

Provide the characteristics of the trading products, concepts and related technical analysis of the basic knowledge, to help customers improve their trading level.

Hedging

Advantages of Securities CFDs in Risk Hedging

Hedging is a strategy employed to hedge risks with an existing stock position using securities CFD trading in the opposite direction to an existing stock position.

Example
Mr. A bought 20 ETF positions at 10,300 Japanese Yen per share . Later the ETF rose to 10,500 Japanese Yen. Mr. A thought the price was likely to be adjusted, but as a medium-to-long-term investment, he didn’t want to sell his stocks. To hedge short-term risks, Mr. A decided to hedge his stock positions using securities CFD.
So, Mr. A sold one SGX Nikkei 225 Index futures CFD position at 10,500 points to hedge decline risks with his ETF stocks with Trade Square. Mr. A closed out his SGX Nikkei 225 Index futures CFD position at 10,200 points.

Profit/loss = (10,500-10,200) × 5 US Dollar × 1 Lot = 1,500 US Dollar (profit)
1,500 US Dollar × 83.00 ( 1 USD = 83.00 JPY ) = 124,500 Japanese Yen

The close price of ETF is 10,380 Japanese Yen.
Profit/loss = ( 10,380 - 10,300 ) × 20 Lots = 1,600 Japanese Yen
124,500 + 1,600 = 126,100  Japanese Yen (profit)
Because Mr. A used securities CFD hedge when his stocks declines, the profit from securities CFD trading offsets the loss from stock investment and there is still profit left.

 

Advantages

Our securities CFD trading is a practical investment method that can be used not only to reduce investment risks but also to earn profits from price difference. In a bearish market, investors holding long positions face risks of price decline or correction. Securities CFD trading provides investors a flexible tool to lock earned profits. It can help you future improve returns on investment. As the above example shows, when the stock market fluctuates wildly due to external factors, securities CFD trading can protect the value of your investment and provides the following advantages:

* No need to sell stocks, so unnecessary commission and the risk of missing the step can be avoided.
* It will not destroy the balance of existing portfolio.
* Flexible(you can buy and sell), efficient.
* Low trading cost.

Please note when the stock market goes upwards, returns on stock investment will also rise. Because securities CFD trading is in the opposite direction, securities CFD positions will bring losses.