Hedging - the Most Effective Way to Protect Your Share Portfolio?

LONDON, August 10, 2011 /PRNewswire/ --

As mounting debt concerns and crises across the USA and Europe continue to rock the global markets, traders everywhere are looking for secure ways to protect their portfolios. One increasingly widespread way to ensure your portfolio isn't damaged by the current economic volatility is to hedge your positions through CFD trading.

City Index (http://www.cityindex.co.uk/) is a leading global provider of CFD trading, spread betting and margined foreign exchange. Joshua Raymond is the company's Chief Market Strategist, and he uses a retail metaphor to demonstrate the essence of hedging:

"It's the classic ice cream stand example," states Mr. Raymond. "If you invest into an ice cream van, then the van is likely to make most money when the sun is shining. However, should it rain, revenues are likely to be down as consumers are unlikely to want to buy ice creams when they are drenched in rain.

"A typical hedge against this would be to invest in an umbrella company. That way, when it rains, any losses made in the ice cream van are likely to be offset by the umbrella manufacturer.

The same can be said for trading financial markets. For example, imagine you hold £5,000 worth of Vodafone shares in your portfolio. You can short sell the equivalent of £5,000 worth of Vodafone shares through a CFD trade. Should Vodafone share prices then fall by 5% in the underlying market, the loss in value of your share portfolio would be offset by a gain in your short sell CFD trade. Conversely, a loss in your CFD trade would be cancelled out by an equivalent gain in your portfolio.

This enables you to retain your portfolio throughout volatility without incurring any significant loss to its overall value.

Sign up for a CFD trading account at City Index at:

http://www.cityindex.co.uk/cfd-trading/start-trading-cfds.aspx

Try CFD trading with no risk to your capital with a free City Index demo account at:

http://www.cityindex.co.uk/learn-to-trade/demo-account.aspx

Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined currency trading, CFDs and, in the UK, spread betting.

We constantly look to widen the range of assets we offer, improve the performance of our platforms and expand the range of services we provide. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer service and support. For more information on spread betting and CFD trading, visit http://www.cityindex.co.uk/trading-platform/.

SOURCE City Index