HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

Speculating with CFDs


Typically short-term, speculative trades are generally coupled to major market events such as central bank interest-rate decisions and company results.

Traders want to capitalize quickly through a timely entry into trades that will see prices take off on the news, and then a timely exit with their profits intact. CFDs are an ideal investment tool for speculation because they have the advantage of leverage that allows you to maximise exposure whilst minimizing investment. Using leverage allows you to increase your potential profits and losses so you should always employ stop losses and other risk-management techniques.

In this section we will describe some typically speculative opportunities and explain how to grasp them:

Trading Opportunities

Speculative trading opportunities tend to have one unifying feature: their link to news announcements. Such announcements may contain the government’s latest employment figures or they may be a company’s quarterly earnings. Either way, they frequently have the potential to cause dramatic shifts in the market.

Examples of news announcements that could create speculative opportunities are:

Breaking news announcements are unscheduled events that will influence share prices. Breaking news like a merger announcement should be beneficial to share and CFD prices, though occasionally the value of a merger is not apparent and the price adjustment will reflect any uncertainty. Negative news announcements will have an adverse affect on share prices.

Company reports provide information regarding recent company performance and plans for the future. Scheduled in advance, they give traders every chance to prepare themselves and take full advantage of their contents. Company reports are not only publications of results for the last quarter, half or year. They should also anticipate trading during the next six months and this will have an impact on the share price. Traders need to digest this information and form opinions on it. When a company’s report shows it performs well and will continue to do so, its prices tend to move higher. Of course, the converse is equally true. Poor and pessimistic reports have a negative affect on share prices.

Economic data emerges in news releases commonly scheduled months in advance, offering traders the opportunity to consider the evidence, predict the announcement and capitalise on the market movements that they feel will happen. Economic data includes inflation, gross domestic product (GDP) information, interest rate announcements and unemployment figures, all of which tend to influence broad markets rather than individual companies. It therefore makes sense to utilise index-based CFDs when speculating on these announcements. When economic data indicates that the economy is buoyant, share prices tend to move higher. If that data is poor, however, prices will usually fall.

Index additions/deletions occur when major market-tracking companies such as Standard & Poor’s adjust the composition of their indices. This might happen, for example, if a company can no longer meet market-capitalization requirements and is therefore de-listed from the S&P 500 index.

Index additions and deletions usually occur at prearranged times though the identity of the individual shares involved is not divulged until the announcement is made. Traders may well realise which shares are likely to be affected, but it will not be confirmed until the announcement. Being added to an index typically raises a share’s demand and its price. It will of course then be required as a component of index-tracking funds. Conversely when shares are de-listed the index-tracking funds sell the share, and its price typically falls.

The Expected Is Already Priced In


An important point for speculative traders to remember about opportunities precipitated around news announcements is that expected movements are already priced into the share price.

Investment analysts, economists and other market participants analyze anticipated news announcements, trying to second-guess the consequences of the news on pricing. Whilst they are unlikely to entirely agree on anything, they do generate a consensus that is useful. This consensus, containing the average estimate, allows traders to capitalize on price movements once the news announcement is released. This is because the average estimate will already be “priced into” the value of the share. We will explain how this occurs.

After their analysis, traders take advantage of anticipated movements. Rather than wait for the announcement they pre-empt the market. So, by the time an announcement is released, most traders have already taken a position.
When news announcements accord with average estimates, prices barely move. This is because the majority of traders have placed their trades. Yet, when news announcements differ from the average estimate, prices must adjust – either up or down – to accommodate the economic reality. This adjustment creates opportunities for the traders.

Implimentation


Implementing Speculative Trades

Identifying news announcement or other stimuli that should cause prices to move will then provide opportunities to capitalise on price movements in three ways:

Entering Immediately Following a News Announcement

Entering trades immediately after an announcement can be difficult because prices tend to adjust sharply when investors have incorrectly guessed the news. So to do this you must get the news quickly, evaluate it quickly and then enter your trade order quickly. Moreover, you need to do this before the price has already taken off. And it will do that quickly too. Traders jumping into trades after the announcement will usually pay a higher share price or sell for a lower price.

Entering Once a New Trend is Established

Most CFD traders who trade on news choose to wait until new trends are established. This is typically the easiest way to capitalise on it, because initially the CFD price will fluctuate as investors speculate on how the underlying asset will trend. Once this fluctuation has abated, it is a good time to participate, but traders who work this way need to learn to ignore the superfluous ‘noise’ before a clear and enduring trend settles. Doing so gives them an advantage over other traders, those who enter too quickly and are caught out by early reversals and prices that trigger their stop-losses.

The direction in which a CFD is going to move is usually clear within 2 to 5 minutes of the news announcement that sparks its movement. Those few minutes will be ample time to shake out any investors trying to buck the trend so it makes sense to use short-term charts – ideally 1 or 2 minute charts to monitor price movements after announcements.

Using Entry Orders Before the News Announcement

Placing entry orders prior to announcements is the most profitable way to trade the news – assuming that you are correct and that the price moves in the preferred direction. By placing orders before the price moves you have the advantage of entering the trade at the price you want. There are risks with entering trades before the news announcement because the market can fluctuate significantly in the aftermath of announcements and will take a little time to settle down. Ultimately the majority of participants perceive the news to be bullish or bearish then act accordingly. In the meantime, you could be knocked into the trade once your entry order is hit, then knocked right back out of it once the price turns around and hits your second entry order.

#source


RELATED

Exness now accepts global customers

Having recently expanded our global reach and established a UK-based entity, Exness (UK) Ltd, authorized and regulated by the UK's Financial Conduct...

Gold at 8 years highs. Why so and who will benefit from it?

The business of storage operators with a high level of security, in which physical, not virtual, metal is stored, is in a boom of demand from wealthy investors...

A Guide to Trading Metals

Precious metals such as gold and silver have been recognised as valuable metals for a long time, but gold and silver are not the only ones out there for investors

Different ways of investing in gold in these modern times

Gold is a bright, yellow, malleable and ductile metal found in nature. It is usually found in rock veins, gold nuggets, grains, electrum or alluvial gold...

Quantitative Tightening: What Is It And How Does It Work?

During the pandemic alone, the U.S. Federal Reserve bought a whopping $3.3 trillion in Treasury bonds and $1.3 trillion in mortgage-backed securities to lower borrowing costs...

What is Risk Management in Finance?

Risk management in the Finance industry refers to the process of identifying, evaluating, and mitigating risks of losses in an investment...

EOS: Where Will 2021 Take This Coin?

If you've considered adding cryptocurrencies to your trading strategy or investment portfolio, you've likely come across EOS. Is this altcoin worth your while?

Is Shiba Inu (SHIB) a Good Investment?

Over the last few years, the Shiba Inu cryptocurrency has exploded in popularity. The coin initially started as a "meme coin" but has found significant loyalty from its community...

Key Tips for Trading in a Fluctuating Market

Have you ever observed nature? Many things, such as the trajectory of a bee, may seem random. At the same time, they are not - there is nothing random in nature...

Trading opportunities during the football world championship

The world football championship is fast approaching. Fans around the world are already thinking about how to best spend their time during this event, and soon...

Crypto trading: what are cryptocurrencies?

Cryptocurrencies are digital money, which represents a class of assets that do not exist in physical form but are created virtually through computer technology...

The Importance of Having a Forex Trading Plan

When approaching a field like forex trading where personal decisions translate into profits or losses, having a well-outlined and easy-to-follow plan can make the difference between success and failure...

Achieve your trading goals with short-term investments

No trader enters global markets without a goal. The goal for many investors is the same: they are willing to catch trading opportunities. Yet each trader...

Forex vs Stocks: Differences, Similarities, and Which to Choose

The forex markets and the stock markets are two popular choices for investors and traders seeking to capitalise on market opportunities. While both markets offer potential for returns...

The Modern Day Trader's Guide: Understanding Time Commitment and Strategies in 2024

As the curtain closes on 2023, with the S&P 500 signaling a moderate gain, the focus shifts to the landscape of day trading in 2024. Day trading, a practice where traders capitalize on intraday...

NFP trading: understanding the effects of the Nonfarm Payroll

Professional traders often consider economic announcements as a reliable indicator of coming price action, and one of the biggest reports that capture traders' attention is the NFP...

IronFX: What are the Advantages of CFD trading?

A contract for difference (CFD) refers to a contract between a buyer and a seller that indicates that the latter has to pay the former the difference between the present asset...

Top 5 undervalued stocks CFDs right now

During the pandemic, we saw some of the most vigorous equities growth since the 1920s. A great number of companies had their valuation treble, quadruple or increase...

PAMM Account: Recovery Factor

One of the most important indicators of the reliability of the trading system used in the PAMM-account is the recovery factor. It is this factor that investors...

Synthetic and Crypto Currency: What Are They, How to Create and Use Them

The set of trading tools that NordFX offers to its clients is a whole arsenal that allows a trader to apply the most effective strategies and win on the fields...

FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
75%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.