expand/collapse risk warning

CFDs come with a high risk of losing money rapidly due to leverage. 71% of accounts lose money when trading CFDs with this provider. You should understand how CFDs work and consider if you can take the risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

79% of retail investor accounts lose money when trading CFDs with this provider.

Market Insights

Trading Insights: CFDs are a tool for absolute return strategies

Copy of Blog Images - Skilling - 2023-06-08T100852.061

Screenshot 2023-06-08 101152
Data as of June 8 2023 7:02 UTC

The above chart illustrates the relative performance of a quantitative absolute return hedge fund strategy vs a buy-and-hold strategy of an equity index over a period of time. Past performance is not an indicator of future performance.

Market Talk

The aim of an absolute return strategy is to generate a positive return regardless if markets are rising or falling.

  • Speculators i.e. traders can use CFDs to actively buy and sell through either going long or short and adjust to market conditions
  • If a market is on a decline the speculator can short sell the market and attempt to capture profits as the market declines
  • If a market is on the rise the speculator can go long and attempt to capture profits as the market rises

The key difference between absolute return and a relative return strategy

  • A relative return strategy is for the investor that is happy to get the same return as the market. They will measure their trades against a benchmark such as the SP500 index.
  • A relative return investor will seek to generate a return that matches the return of the index. So if the SP500 index has returned 10% over a 3 month period, the investor with a relative return strategy will seek to have a similar return as the index.
  • Basically, this type of investor is happy to get the same returns as the “market” or benchmark.

Relative return investors typically will employ a long only approach i.e. they seek to make money only if a market is moving up. These investors will generally use stocks or ETFs for this strategy.

  • The absolute return strategy is for the investor who seeks to generate an absolute positive return regardless of economic or market conditions without following a benchmark.
  • CFDs are more efficient than stocks for short selling i.e. the CFD broker does not have to find and borrow shares to allow its clients to short sell
  • Investors following an absolute return strategy may prefer to trade CFDs since CFDs are typically available through a CFD broker with less to no restrictions for short selling

Bottom line: The ability of the CFD trader to go short with the same efficiency as going long makes CFDs an attractive instrument for absolute return strategies.

The above commentary does not imply that one strategy is better than the other. All trading strategies involve risk.


Today’s economic calendar

Screenshot 2023-06-08 101240
Source: TradingView / J. Knobel June 8 2023 6:03 UTC


Commentary & insights

USD/CAD near key support

The CAD strengthen sharply against the USD after yesterday's Bank of Canada surprise rate hike

The below chart shows that the USD/CAD is approaching the key support near 1.33, further downside can not be ruled out if price falls below the 1.33 support area. Below 1.33 could expose the 1.3260s and the 1.3090s as potential further downside extensions. Upside risk seen above the 1.35s.

Screenshot 2023-06-08 101317

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Not investment advice. Past performance does not guarantee or predict future performance.