There is a great portfolio of popular CFDs for investors to trade in the markets today:
FX Majors and Minors, Indices, (S&P500, FTSE, AUS200, DAX, CAC, US30, US2000, US100), Commodities (Gold, Silver, Oil), and now even Cryptocurrencies like Bitcoin.
This is an array of some of the most liquid markets that traders like to speculate on in CFD trading, and for good reason. Each of these instruments present various advantages and disadvantages, and none could be considered significantly easier than the other. Therefore, the importance of properly studying any of these CFDs and understanding the risks involved is equally critical. Whilst FX Majors and Minors, indices and commodities have existed for eons now, cryptocurrencies are the ‘new kid on the block’ and growing in recognition, partly thanks to Bitcoin.
FX Majors and Minors: Arguably the most popular CFD to trade currently, FX Majors and Minors are an instrument which has existed for decades. With a daily traded volume of a few trillion dollars and counting, this market offers a never-ending amount of opportunities for profiting. One massive advantage over this instrument is that it is heavily leveraged, far above its counterparts. Of course, leverage is considered a double-edged sword. However, the barrier to entry or accessibility with FX is much lower because it requires lower margin. Hence, algorithmic trading/expert advisors and copy trading are some of the things becoming increasingly popular in the mainstream.
The spreads and other trading costs tend to be very minimal. Overall, this market has true instant execution. Being a market that is open 24/5 for a vast majority of the calendar year means that it is to get in and get out with ease. Traders who trade the news can trade the Bank of New Zealand’s interest decision at 3am in the morning and hold the trade literally for five minutes and make a profit.
In terms of what actually drives this market, traders can successfully specialise with just technical analysis or also incorporate fundamental analysis. Because FX Majors and Minors are always quoted in pairs, it is very simple to compare the strength of one currency in comparison to another and also through other instruments to which currencies often move in tandem with. There is a lot of price data for this instrument stretching as far back as the 90s, which means it is simple to study historic price movements and the patterns that have repeated themselves over the years. For traders using only fundamentals, all the various reports of economic policy and markets news releases for trading news are publically available to be analysed.
Indices: The S&P500, FTSE, AUS200, DAX, CAC, US30, US2000, US100 are some of the most popular indices that are traded in the world. Indices are a plural form of index, which is essentially a measurement of a basket of the biggest companies within an economy or region. Indices are measured either with market-valued weighted averages or price-weighted averages. As a result, the performance of an index is constantly monitored by market participants at all levels since it has a bearing on the performance of a particular economy or region.
So, as an example, the AUS200 is an index which includes 200 of the biggest Australian companies. The S&P500 includes the top 500 American companies, and this index is one of the most well-known of all indices due to its massive market capitalisation and strong correlation with other non-index markets.
Trading indices is a natural extension to trading individual stocks of blue-chip companies, but there are distinct advantages with the former when compared with other instruments. Instead of exposure to one company, currency or commodity, indices obviously exposes a trader to a plethora of companies in one. Indices tend to move in a more streamlined fashion with very little sideways movements or consolidations than FX, for example. With this in mind, it becomes a lot more favourable to make consistent profits with these market conditions. Indices could also be thought of as less complex to analyse than some other instruments.
The slight drawbacks with indices is their heavy tendency to have price gaps and the spreads are typically higher. Indices are usually very prone to slippage as well. Also, unlike with cryptocurrencies and FX, certain indices markets are open at more limited hours. These are not massive drawbacks to detract retail investors as the advantages far outweigh them.
Commodities: Commodities are another popular type of CFD for market participants. Owning the underlying physical asset in an exchange such as with gold or silver is not mandatory nowadays when these can simply be bought or sold with ease on a trading platform via a broker. What has stood the test of time with commodities is how they’ve long been considered as a safe haven for investors during times of adversity or instability in the political and economical spheres. Commodities like silver and gold have retained their value throughout the decades because of their demand and can be considered inflation-proof, which is unlike fiat currencies or paper money. Similarly with oil, there will always be a demand for this commodity.
Some traders specialise trading only in commodities, whilst others use commodities as a hedge or diversification to other instruments like FX and indices/stocks because of their historical correlations. For example, the Canadian dollar has a very strong correlation with oil since the country is one of the biggest oil exporters. There is also a strong correlation between gold and the Australian/New Zealand dollar since both of these countries respectively are also very great gold exporters.
There seems to be a higher barrier to entry for trading commodities as typically a lot of brokers offer far less margin than with other instruments. This is more pronounced with oil, though in general, one requires much more equity to trade commodities, which means that even the spreads are much higher overall. Other than this, commodities are always going to be necessary in the world and are a worthy addition to any investment portfolio.
Cryptocurrencies: There arguably hasn’t been a bigger boom in recent history for a market instrument than that of cryptocurrencies, mostly notably with Bitcoin’s euphoria over the last few years. Bitcoin is the most popular cryptocurrency and has witnessed astronomical growth since its inception, particularly in 2017 where it continuously reached unprecedented all-time highs. Whilst it continues to polarise opinions as to whether it is merely a fad and bubble or not, one cannot deny the potential of blockchain technology for the future.
Many merchants are already accepting Bitcoin as a form of payment, which shows the world is slowly becoming a place where fiat currencies are going to be replaced by a more paperless system. However, blockchain has much more significant uses besides creating more of these coins. As part of leading the Fourth Industrial Revolution, blockchain is expected to disrupt industries dealing with security, social media, finance, healthcare and real estate, to name a few. So, trading cryptocurrencies is just a natural extension to all the possibilities this instrument has.
Speculators have the option of either speculating on the price fluctuations of cryptocurrencies, buying the digital asset via an exchange or even mining certain coins. Companies like ETHLend are now allowing you to do crypto loans whereby you borrow money using these coins as your collateral and only with a maximum of 3% yearly interest, which is drastically cheaper than a typical loan through a bank. There are now also more cryptocurrencies becoming more prominent such as Ethereum, Ripple and Litecoin.
It is then no surprise that brokers have caught onto this wave by offering a number of these currencies. One of the factors which set cryptocurrencies apart from other instruments is that they are open 24/7 with some brokers as it is a decentralised market. Likewise, there is also a lot of significant intraday volatility. Even though this can be a good thing when traded properly, because this is still a fairly new market, it has not gained as much predictable ground from a technical analysis standpoint since there is only a few years of price data, unlike with the other instruments that have existed for far longer.
Something else about this particular market is that currently, it seems the leverage is much lower than compared with FX. Brokers tend to offer in the range of 5:1 to 50:1, whilst with the latter, this can go from 50:1 up 500:1 or higher with some brokerages. Nonetheless, cryptocurrencies are going to exist in the future as the world starts utilising blockchain more and converting physical money into digital money.
Summary: The number of CFD trading strategies cannot be definitively measured because there are so many ways to trade and many instruments to trade. From those who thrive on trading the latest market news live or the latest market news today, intraday and swing traders to those who like to buy-and-hold, there is a market for every type of personality in the most popular CFDs to trade.
