Contracts for Difference, an opportunity for 1000% gains

Due to the high volatility registered since the beginning of 2009 on all the three major markets - forex, commodities and stocks- transactions with Contracts For Difference (CFD) have provided opportunities for returns of up to 1000% on the initial investment, according to Victor Safta, manager of X-Trade Brokers Romania.

The greatest opportunities for winnings were provided by the forex market, where the EUR/USD pair reached a parity of 1.4053 this year, and it is now trading near 1.2700, which means a -9,62% change.

Transactions with CFD"s require depositing an initial margin as collateral for the transaction, which only represents 1% in the case of forex market transactions; e.g., by creating a 1000 Euros deposit as collateral, a person can trade 100000 Euros. Therefore, to people who sensed the market"s trend, by trading the EUR/USD pair on margin, the market"s variation since the beginning of the year could have brought a 962% return on their initial margin - for a short position on the EUR/USD, from 1.4053 to 1.2700.

As for the commodities markets, gold offered good opportunities to win as it has been on an upwards trend: at the beginning of the year, the price of gold was 883 USD, and following a clearly visible rising trend, it reached a maximum value of 1006 USD. The 14% variation, together with a 3% margin, could have lead to a yearly return of 448% on the margin deposited for the transaction.

On the stock market, Dow Jones (US30) begun the year at a value of 8730 and came close to 6600 at the beginning of March; this is a 24% change, which means that considering the 2% of the nominal value needed for making the trade, those who spotted the trend got a 1200% return on their margin.

"All the markets we mentioned provided opportunities for speculation. It is hard to believe that an investor could have foreseen the complete trend between the beginning of the year and the beginning of March in any of these markets, but even simply spotting some of the trends could have lead to considerable profits", Victor Safta said. "But we must remember that even though they offer the possibility of considerable returns on a low initial investment, CFDs involve the same investment risk as effectively buying or selling the underlying asset at the face value of the contract", the manager of X-Trade Brokers Romania said.

Concerning the international markets, it has to be said that most of them followed a similar trend, as they were strongly affected by the negative evolutions of the American indexes, which in turn provided the opportunity to profit by using "short" trades. The sharp drops of the financial sector, in particular in the United States, were among the best opportunities to enter "short" trades.

X-Trade Brokers analysts estimate that one of the instruments that seems to be ready for a sharp move in the foreseeable future is oil.

"Contracts for Difference provide the opportunity to make sizeable gains, but they also involve taking on a big risk, in case the investor doesn"t know how to stop a possible loss.", the head of X-Trade Brokers Romania said. In other words, the risk is directly correlated to the opportunities to gain.