Spread/CFD trader, Welile Hope, previously a stockbroker at a large South African investment institution, has an extensive investment portfolio. He recently started 'Spread/CFD Trading` after attending a presentation on the concept hosted by Global Trader 247.
Says Hope, "What I learnt was that derivatives are securities, like options, futures contracts or Contract for Differences (CFD`s), whose value depends on the performance of an underlying security. Whether your investment strategy is `buy and hold` or 'buy and sell`, moment to moment trading in derivative products is far more cost efficient and generally more effective than trading in ordinary shares quoted on the JSE securities exchange."
He goes onto explain that the old system of placing an order with a broker and then waiting for it to be filled no longer works in an environment where market makers like Global Trader 247 will show you a live bid or offer and you can therefore buy and sell instantaneously.
Additionally, he says that trading in contracts that are derived from the performance of another asset means that you can benefit from the price volatility of an asset without owning it. "That`s the jargon, but essentially it means that derivative markets are the most actively traded daily markets in the world for two very good reasons. Firstly you can short sell derivatives, and secondly trade on margins and therefore leverage your investment."
Says Mark Wurr, Head Trader at Global Trader 247, "Derivatives such as the futures related products that we offer, which are called CFD`S, are not physically settled. When Spread Trading you are settled on the difference from when you open a contract and then close it later. This means that you don`t have to take delivery of the shares and pay fully for them. This also means that you don`t have to deliver the shares to your broker the next Monday that you short sell."
Although new to the concept of Spread Trading, Hope is very positive. "Spread Trading futures related derivatives products allow me the freedom to take three distinct trading strategies that I can not do with any other broker, asset manager or even corporate treasury."
"Firstly, I can leverage a long term fundamental view. If I believe that a share offers long term fundamental value then I want to be able to leverage this view and implement a buy and hold strategy with a fixed stop loss and a target profit that I know will be executed automatically as the market reaches those levels, whether I`m on focusing on my other business` or away on holiday. Spread Trading allows me to place small initial margin to buy or short sell a stock or Index, stipulate a stop loss, take profit levels and then to hold that strategy for an indefinite time. By placing a small initial margin of between 5-20% means I can sometimes leverage my investment up to 20 times. Obviously the ability to maintain a short position indefinitely is afforded as well, Short selling is as legitimate investing strategy as buying."
He continues, "I can also trade short term volatility- occasionally I will be alerted to sudden market movements in the press, and I want to be able to take a contrary view. For example the local press or satellite TV stations may make a headline story about recent large market movements - if I hear the ALSI had an incredible trading day, while offshore markets were weak, I want the ability to take the contrary view on the ALSI and short sell."
Bearing in mind that this is risky business, he adds, "I always use the stop loss and take profit facilities offered on the Global Trader 247 website in order effect a genuine trading strategy. I don`t want to get greedy and hold out for more profit then I originally intended and I want the system to discipline me and tell me when my strategy was wrong by effecting a stop loss. Daily short term volatility offers great opportunities to trade in an out and make small amounts from small movements as often as 5 or 6 times a day."
Another advantage he points out is relative value trading. "I want to be able to buy one market and sell another. This allows me the benefit of being able to maintain a market neutral strategy, which is great in times of general world uncertainty. This concept of hedging is great, I may want to buy Harmony and sell Goldfields. This means that if both go up, I make no money and if both go down, I make no money. If Harmony becomes relatively more valuable then Goldfields, then I make."
Says Global Trader 247`s Wurr, "Trading different markets against each other can really only be afforded by being able to short products and then the benefit of doing so increases with only having to deposit a small initial margin in order to trade. Other strategies taken by many of our investors for example, is to trade Didata versus Datatec, or trading the banks against each other - Firstrand versus Investec and ABSA etc. Cross market trading is also a very interesting strategy. Sometimes investors like to trade London versus New York or the high tech Nasdaq versus old style industrial giants in the Dow Jones, or they trade bank stocks versus gold stocks."
Continues Wurr, "Obviously trading on margin means that you are leveraged and therefore you risk more. Global Trader 247`s system installs the necessary discipline needed for trading in derivatives. Every trade needs to have a stop loss, you can not trade with Global Trader 247 with out one. This means that if my strategy is wrong, I get closed out and my loss is limited to the margin I place. Global Trader 247 promotes the use of `take profits`- when you enter a strategy, decide what your target profit is and then let the system trade when you reach that target".
Says Hope "The worst strategy is one in which you reach your target, then hold out for more money and while adverse market movements erode you initial profit. Global Trader 247 also gives me live Reuters news reports so I see what the traders on the world`s exchanges are seeing at the same time that they do."
Investors wishing to experiment with spread trading are advised to learn as much about the concept as possible, and ideally should have some sort of trading experience. Global Trader 247 also offers a 'simulated` trading environment wherein the investors can trade online, whilst not investing any capital.
For more information on Spread Trading, call the Global Trader 247 help desk on 011 520 9010 or tollfree on 0800 247 000.
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