Last update : January 26th, 2014
How to Edge your positions with Environmental Risks (Taking a short position on Index's)
Having access to several instruments with your broker can be extremely beneficial for edging position against environmental risks that may strongly impact a country's financial markets (as seen during the Housing market crisis). Edging as opposed to "hedging" with the combination of derivatives investments such as stock options and futures contract, edging your position means taking benefit of a obvious opportunity in the market.
Though, I strongly recommend you to learn about derivative instruments since i will be writing about them eventually and post my results using derivative instruments. Since stocks can be unpredictable and sometimes offer poor return, if you don't know what is shorting stocks, you should NOT be investing on the financial market yet. I will be writing about a scenario of taking short positions on stocks on my next post.
Today my goal is to make you understand the difference between the SPOT prices and FUTURES prices. I suggest if you have a Iphone, Android or Blackberry you should download the Bloomberg app immediately. SPOT prices are for immediate delivery as opposed to FUTURES prices and they both will keep record of the same index's, commodities and ETF's. FUTURES are for a later delivery.
Please be adviced that Deltastock from Bulgaria does not accept any Canadian residing in North America. One of my strategy is to trade the S&P500 by taking short position (meaning selling the asset before even owning it). Please note that trading CFD's (Contract for Difference), it is classified a OFF-EXCHANGE trading because your broker offer you the systems without ever sending your order to the Exchange (ECN) or trading floors. The main benefit is that you never have to wait for your orders to go through, it is executed as you click SEND. Please note that CFD's are illegal in the United States due to a high level of propaganda used to influence the financial markets. CFD's are legal in Canada and follow Forex (currencies), stocks, futures, index's and ETF's with a + or - variation of approx. 0,001%. CFD's trading cost is the spread (the difference between the bid and ask). Please be aware as you research for CFD's brokers, some of them follow the movement of Index's Futures and not SPOT which will varies much more and often are ahead of the SPOT prices. As a example, I have tested AVATrade and i did well but I found their S&P500 index's to be always ahead of the market, meaning that let say I wanted to short sell the index (SPOT) when I looked with AVATrade it was already way down, making my trade dfficult to anticipate.
Speaking of Brokers, if you are managing a large amount of money (over 200 000$) and wish to trade CFDs, I would refer you to CMC Markets in Toronto, they have the largest varieties of stocks I have come across. They only offer a 3:1 leverage on stocks, compare to DeltaStock who offer a 10:1 leverage. Remember though, the leverage is granted to you according to the securities volatility (safe factor). CMC will offer you thousands of CFD-Stocks, ETF's and more. However during my analysis I did not find the Japan Index Nikkei225.
As of right now I am currently shorting the Index S&P500 SPOT with DeltaStock on a demo account. Since I can progressively short 100 shares of the +or- 1800 points index who on january 24 / 2014 had only 21 stocks advancing compare to 479 stocks declining. I am not making a recommendation to short the index but I will post a chart from "Stockcharts.com" since i have been autorized by Stockcharts.com to used their charts.
Reference : www.deltastock.com (only for members of the Europeen union), www.cmcmarkets.ca , www.avatrade.com also check out www.gcitrading.com
You should try their mobile Demo account...
P.S Please be advide this post may be edited and changed at anytime, i will update the date everytime i do so.
