Interest rates when at times low and a confirmed election date have provided the “sharemarket” a much needed boost. However, for people now used to the investments in contracts for difference (CFDs) and exchange-traded funds (ETFs), it basically means rethinking a much better strategy.
It is possible to trade by taking a counter trend approach nut is generally suited for people who have been in the market a little while longer. However, the basic message is still not to go short into an instrument wherein the price is continuously rising.
There has been an increase of interest in the US market and this has been driven by the growth in price-to-earnings ratios and not by widespread increases in the profit of US companies. And as for the trends in ETFs, the start of the Future Financial Advice (FoFA) reforms that paved the way for new regulations over significant parts of the financial advice markets was one of the decisive factors affecting this part.
The move from trailing commissions to a fee for service model among the wide range of financial advisers had encouraged them regarding all forms of investments as being equal which resulted in an increase in numbers which are now investing in ETFs.
We expect the Australian ETF industry to expand to a similar fashion with the US and is projected to grow significantly in terms of diversification of ETFs and growth of funds that were being invested in the ETFs over the succeeding years.
Paying closer attention
From a technical perspective, rules for trading short ought not to be too dissimilar from trading long. However, shorting normally requires intricate attention since positions tend to move much quicker than long positions. Analysts are also reporting that there has been significant interest among retail investors for exposure to overseas markets which have easier access through ETFs and CFDs.
A lack of local familiarity regarding the economic and political environment as well as current affairs may provide traders the edge from their local counterpart. In terms of the countries in which investors have shown significant interest, Japan has been under fire but there has been some evidence of some consolidation.
The Bank of Japan’s aggressive monetary policy has been made positive for the Japanese equities market and the earnings from the Japanese-listed entities revealed to have strong factors that have sparked the demand from previous investors.
When it comes to trading CFDs in an extremely unpredictable market, one of the advantages is the ability to afford larger exposures to a rising index than those traders using plain cash. They offer the ability to purchase larger exposures to companies and sectors that most believe will outperform the broader index. For example, people might feel that financials will outperform mining service companies which in this case, traders can use CFDs to select certain sectors instead of just buying the entirety of the market.
Consideration of a decent amount of time frame is very important when trading shorts. Trades that are done longer than three months need to be cautiously considered from an advantageous point of view.
Generally, the manner if successfully trading CFDs involve a grasp of various ranges of technical indicators as well as a common sensible grasp in understanding price action. Successful trading is all about working out what trends are in better and more profitable in terms of higher ends and lower lows.
The key to be a well placed trader is to have in mind a good fundamental understanding of a company and integrating it with indicators.