Discover Why SMSF Trustees are Using CFDs To Protect Their Stocks During Volatile Markets

May 21, 2012 - PRLog -- More SMSF (Self Managed Super Funds) trustees are using the power of Contracts for Difference (CFDs) as a hedging tool within their SMSF to protect their core portfolios, particularly after years of extreme volatility in local and world markets and our local market having its worst weekly performance in 2012.

Since 2007, SMSFs have been allowed access to CFDs.  This change has given trustees a cost effective and efficient tool for hedging as opposed to traditional methods such as options.

”If an SMSF holds 2,500 ANZ shares then an options hedging strategy would require 25 separate options contracts to be written (options over Australian shares are written in 100-share contracts).

“Whereas, a single CFD trade could protect the ANZ shares on the downside, which is essential during market downturns such as recently when ANZ fell just over 12.5% in 13 days.  Instead of being exposed to a 12.5% drop in ANZ, an SMSF investor positioned via hedging, could have positioned themselves to limit that downside for minimal outlay. This explains the growth of CFD trading by SMSF's trustees to ‘short’ their own portfolios to protect the value of the core portfolio in case of a market slide,” said Ashley Jessen, Head Sales Trader, Capital CFDs.

However, most CFD providers do not recommend SMSF trustees use their portfolio for principal trading  or speculation via derivatives.  As opposed to using CFDs to speculate, smart investors can use them for risk protection measures and to reduce exposure to local stocks that have since fallen out of favour in the market.

“Experienced investors who understand leverage and who are looking to use CFDs for risk protection are well advised to consider this technique further. Eurozone announcements that spook investors and drive markets down are all too common nowadays, so investors need to consider all the tools available to limit their downside and lock in profits” said Mr Jessen.

For more information on how to use Contracts for Difference (CFDs) to hedge an existing portfolio, download our free Successful Traders Blueprint here: http://www.capitalcfds.com.au/free-trading-ebook/index.html