London, England -- (SBWire) -- 04/15/2011 -- Hedging with CFD trading from City Index (http:/www.cityindex.co.uk/) offers a cost-effective alternative to traditional hedging. For example, if an investor possesses £5,000 of Vodafone shares and suspects that the share price might decline over the coming months, they might sell their shares and then repurchase them once the value has fallen. As a consequence, however, they would have to pay stamp duty, two lots of dealing commission and potentially capital gains tax.
In contrast, if the same investor was to turn to CFD trading, they could hedge their position by short selling the equivalent of £5,000 Vodafone shares on a CFD trade. If the buy/sell price was at 2500-2500.1p, this would mean the investor short selling with a CFD trade of £2 per point (£5,000 divided by 2500).
From here, the investor would either make £2 for every point that the Vodafone share price falls - thus covering the near-equivalent loss of their portfolio - or they would lose £2 for every point that the index rises, a deficit balanced out by the increase in value of the shares they own. With no charges beyond Capital Gains Tax, the CFD trading investor would retain almost all of the original £5,000 value of their portfolio even if the portfolio itself did not.
Though hedging with CFD trading will never generate actual profit, it does protect your investment by seeing that your financial position remains relatively static regardless of market activity. To learn more about CFD trading and hedging, visit http://www.cityindex.co.uk/cfd-trading/what-is-cfd-trading.aspx
Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
About City Index
Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.
As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, spread betting.
We constantly look to improve the performance of our platforms and expand the range of services we provide. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer service and support. For more information, visit http://www.cityindex.co.uk/.
Hedging With CFD Trading From City Index