CFD Trading to Hedge Currency and Other Risks

Hedging is nothing new, but when one is trading stocks on a big scale they can hedge all downside and upside risk, through CFD trading, in ways that make sense.
CFD trading offers unique tax benefits in most countries as opposed to high frequency stock trading where the tax liability on profits is significant. Moreover CFDs allow you to short a stock even during the worst market conditions when there will be restrictions imposed on short selling. So the opportunities are wider and better with the use of CFDs in high frequency trades as well as hedge trades.

Hedging Protects against All Kinds of Risks

Hedging can be implemented through CFDs to limit the downside accounting loss on a long term stock investment. It can also be used to limit the upside risk on a stock that the investor has not yet actually purchased due to uncertain timing or lack of funds. CFDs through their leverage offer big buying power and unlimited holding time. And they allow for less than perfect timing since the trader can hedge one CFD trade with another CFD trade in the opposite direction, either on a related stock, or on a major stock index. The days of simply buy and hold are over for most investors. As markets may spend a great deal of time going up and down, in a neutral kind of trend. The concept of trading CFD is seriously underestimated.

All traders can trade crude oil. But also ordinary business owners whose businesses are influenced by the price of crude oil are able to hedge the profitability of their businesses against extreme price increases in the price of crude oil. Of course this hedging only covers the actual rise risk, but not permanently high crude oil prices. Despite that, the savings are often massive in the short term. While the business has the time to later slowlly adjust to the high prices, should oil prices stay there for too long.

Forex is No Exception as Traders Can Hedge Most of the Risk

Here too, in all kinds of foreign currency trading traders can limit risks. Currency trading requires good planning and use of sound strategies, but there are some differences compared to stocks or commodities. This is because currencies don’t collapse, as one currency rises another is falling. The concept of investing in foreign currency is good as well, as long as one knows what they are doing. Some currencies spend years appreciating against other currencies. And there are people who even take property mortgages denominated in falling foreign currencies. This takes years off the repayment period and the homeowner saves a fortune. But if that said homeowner realized they are wrong on the timing, and some kind of counter trend is about to happen for few months, they can take action. This action is to hedge the risk that the counter move will pose to the planned mortgage repayment plan, through some cost and tax free CFD trading in the opposite direction. Changing the mortgage every few months is out of the question because it is too much hassle and too costly in fees and taxes. Only CFDs can come to the rescue and cover most of the short term risk. While allowing the mortgage to benefit from the long term trend which is unlikely to change.