How to Use CFDs in the Latest Tech Rout

tech rout CFDs
Source: Bloomberg

The Nasdaq100 lost around 10% during the latest tech rout and entered a corrective phase following months in a row of outperformance. Most market participants were caught by surprise, considering the selling had been triggered by news around a big exposure of SoftBank, in the tech sector. We’ve already talked about why the S&P 500 could enter a longer correction, but today, the main topic will be how to tech advantage of the latest increased market activity using CFDs.

# Trade volatility CFDs

Since stocks had been retracing, volatility had been increasing. As a result, it is still a great opportunity to trade CFDs of volatility. These contracts had been very active for the past two weeks and that’s what we, CFD traders, aim to look after. The VIX continuous contracts had almost reached 38.5 on September 4th but continue to be elevated as stocks remain volatile.

# Hedge stocks exposure with indices CFDs

For months in a row, stocks had been some of the best-performing assets and there is no doubt a lot of traders had been gaining exposure. However, as the market started to retrace lower, some of the profits started to vanish and a good way to prevent that from happening was to short indices CFDs. Contracts on the Nasdaq, S&P 500, or the Dow are all very liquid and carry small, spreads, with most of the brokers, which means there’s no reason why you shouldn’t use them if you want to hedge stocks exposure.

# Intra-day trading

With volatility, a lot of intra-day trading opportunities are arising. Prices react to support/resistance levels in a meaningful way and considering daily variations had been double-digit in stocks like Tesla, CFD traders can place trades even for a few hours or less. It is important to note, though, that trading accuracy plays a very important role in this case, but with a strong directional bias, the probabilities of being right when trading with-trend are greater.

No matter what type of strategy you choose to take advantage of the latest tech rout, the good news is that stock markets continue to be very active and that’s what we traders look after. There are a lot of high risks events near term, including Brexit uncertainties, US election, COVID-19 rising cases, and others, which means market participants will react strongly each time a meaningful headline will show up. It is our duty to take action and place trades accordingly, without any hesitation.

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