finance
monthly
Personal Finance. Money. Investing.
Contribute
Newsletter
Corporate

Contracts for difference (CFDs) are a form of derivative trading that can be used to earn money. It is important to understand the algorithms and rules of trading and trade using a CFD account.

When investing, there is an interaction between the seller and the buyer, the result of which is a purchase and sale transaction. This is similar in trading, although you don’t take ownership of the asset directly. Financial assets can include stocks, bonds, currencies and more.

CFDs are an agreement to exchange different prices for a specific asset between the time that you open the contract and close the contract. In this case, you can benefit from an increase or decrease in value, although you can also experience losses if the markets move against your favour.

How to manage capital risk

Market risk in CFD trading is a common occurrence. You can face serious difficulties and suffer losses. To avoid unnecessary risks, you could follow some simple guidelines:

News is an important aspect

Traders should stay aware of events in the financial markets that can influence price movements. As releases such as company reports are prepared in advance, trends can be discerned.

The mood of market participants can change quite quickly, and a CFD trader needs to be ready to take decisive action. The news trading strategy is well suited for determining price volatility in the short term. It can be used for the following:

If you miss important information, you may lose time also. Some releases may have a significant impact on certain sectors of the economy, as well as on specific countries and regions.

If you’re considering entering into large positions before the release of major news, you do not know how the market will behave, so it may be better to wait in some instances. Keep an eye on company earnings reports, dividend information and other important news.

Hedging

Hedging is implemented in two ways. In the first case, you acquire opposite assets. If there is a crash in one market, you could benefit from stability in another market. In the second case, you buy and sell the same instrument, therefore insuring yourself against serious price fluctuations of the asset.

CFD hedging is characterized by the following features:

  1. The strategy becomes especially relevant if the level of price fluctuations is high
  2. This method is often used when there is a need to fix the profit
  3. The level of risk is reduced to a minimum

Suppose you’re trading CFDs on Netflix shares. They’re 2% more expensive, and that growth should continue. But you intend to protect that profit. In this case, you can close the position or resort to hedging.

You could enter into a contract for difference in the other direction, which will allow you to avoid problems when the share price declines. If you have such a position, you are less likely to suffer losses. However, this method should not be used in all situations and isn’t guaranteed to protect you.

Example

For a better understanding of the CFD trading process, let’s look at two examples of transactions. Suppose you buy Apple shares at $160 per share. After a week, their value increases to $180. If you decide to sell them, you will net a profit of $20.

Now consider another scenario where you purchase a CFD contract for shares in the same company. With the help of leverage, instead of $20, you could earn $100 or even more as the value increases (or lose that equal amount if unsuccessful), as leverage gives you greater exposure to the markets. It should be noted that it takes tens or hundreds of thousands of dollars to invest in a large share, so trading derivatives is a much easier option for many people.

Conclusion

The advantages offered by CFD trading need to be compared with the disadvantages if you’re making a decision on whether to trade. Of course, no one promises guaranteed success. CFDs can open up great opportunities if you properly analyze the market, choose a successful strategy, and show flexibility and consistency in your approach.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread betting and/or trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Marketing for CFDs and spread betting is not intended for US citizens as prohibited under US regulation.

Are you looking for ways to make your money work harder for you? If so, you may want to look into alternative investments. When it comes to investing, there are a lot of options out there. You can invest in stocks, bonds, real estate, and other options. However, if you're looking for something a little outside the box, you may want to consider alternative investments. These investments can provide you with unique benefits you won't find elsewhere. In this article, we will discuss the main reasons why you should look into alternative investments. Let's get started.

Lower Volatility

One of the main reasons to consider alternative investments is that they can offer you lower volatility. Volatility is a measure of how much the value of an asset fluctuates. When it comes to investments, you want to find something that will offer you stability. With these alternatives, you can get just that. These types of investments are less likely to experience sudden drastic changes. This means that you can feel confident knowing your money is in a safe place.

Alternative investments have lower volatility because they are not as affected by the stock market. For example, if the stock market crashes, your alternative investments will not be as affected. This is because they are not directly tied to the stock market. You will enjoy greater stability and peace of mind with these investments.

Higher Returns

Are you looking for an investment that can offer you higher returns? If so, you should consider alternative investments. These types of investments can offer you the potential for higher returns than traditional options. For example, if you invest in a stock, you may only make a few per cent each year. However, with an alternative investment, you could potentially make much more. This is because these investments are not as well-known.

As a result, they are often undervalued. This means that you can get in on these investments at a lower price and enjoy greater returns when they increase in value. So, if you're looking for an investment with the potential to offer you higher returns, alternative investments may be the way to go.

Diversification

Another reason to consider alternative investments is diversification. When you diversify your portfolio, you are spreading out your risk. If one investment goes sour, your entire portfolio doesn't have to suffer. This is important because it can help weather any storms that may come your way.

With alternative investments, you can diversify your portfolio in a way you couldn't with traditional options. For example, if you invest in real estate, you are investing in a physical asset. This offers you a level of diversification you couldn't get with stocks or other paper assets. As a result, you can protect your portfolio from any unforeseen events.

Direct Ownership

Another advantage of alternative investments is that you can enjoy direct ownership. When you invest in stocks or other traditional assets, you entrust your money to someone else. You have no control over what they do with your investment. However, with alternative investments, you can enjoy direct ownership.

For example, you will be in control if you invest in real estate. You will be the one making decisions about what to do with the property. This means you can reap all the benefits of your investment. You won't have to worry about someone else mismanaging your money. You can easily change your investment strategy if you feel it isn't working. You do not have to depend or rely on anyone else when you invest in these alternatives.

Direct Tax Benefits

Alternative investments can also offer you direct tax benefits. For example, if you invest in real estate, you can deduct certain expenses from your taxes. These deductions can include things like repairs, insurance, and property taxes. This can help you save a significant amount of money come tax time.

A good example is when you are looking to invest in a vacation rental property. You can list the property on Airbnb and make money when people rent it out. Not only will you earn income from the rental, but you can also deduct expenses related to the property. This can help you save a lot of money come tax time. You only need to make sure you keep good records of your expenses.

Passive Investments

Are you engaged in a lot of other activities? Do you have a full-time job or a family to take care of? If so, you may not have much time to devote to your investments. This is where passive investments can be helpful. With these types of investments, you can enjoy returns without putting in much work.

Alternative investments do not require you to be actively involved in earning a return. For example, if you are a real estate investor, you don't need to do much once it's up and running. You can simply collect the rent each month and enjoy the returns. This is a great way to invest if you don't have much time to devote to your portfolio. Also, it can be a great way to earn extra income.

Strong Income

Most investors are in the market to earn a return on their investment. With alternative investments, you can enjoy a strong income. This is because these assets tend to appreciate in value over time. For example, if you invest in a rental property, the property's value is likely to go up over time.

This appreciation can provide you with a strong income stream. You can sell the property for a profit or use it as collateral for a loan. This can give you the opportunity to invest in other assets or simply enjoy the extra income. So if you are looking for an investment that can provide you with a strong income, alternative investments may be the right choice for you.

These are just a few reasons you should consider alternative investments. These investments can offer you diversification, direct ownership, tax benefits, and a strong income. So if you are looking for an investment that can offer you all of these things, be sure to consider alternative investments. You may be surprised at how well they can perform. Start your research today, and you can earn a strong return from these unique investments.

For our October front cover story, Finance Monthly reached out to Joseph Pacini - the CEO and Co-Founder of XIO Group. He is responsible for the strategy and management of the global multibillion alternative investments and research. Headquartered in London, XIO Group also has operations in China, Hong Kong, Germany, Switzerland, United Kingdom and the United States.

XIO Group’s strategy is to identify and invest in market-leading and high-preforming businesses located across Europe and North America, and to help these companies in capitalizing on untapped opportunities in fast-growing markets, especially those in Asia. Here Joseph tells us more about it.

 

What have been the alternative investment trends in Hong Kong and globally in the past twelve months.

What we have seen is that there has been a tremendous amount of competition in the market for high-quality assets. To differentiate ourselves from our competitors, we have sought to uncover untapped opportunities and proprietary deals, in order to generate substantial returns for our investors.

 

What were XIO Group’s beginnings?

I had known Athene Li for many years from Asia and from when I was Head of Alternative Investments at BlackRock. Initially, we were planning to work together under the BlackRock Alternatives team, but after a variety of personal/firm decisions, we decided that it would be a great opportunity to set up our own firm with a specific strategy to invest in market-leading businesses and take them to Asia.

 

What considerations do you look at when identifying a business to invest in?

When we look at businesses, we want to have a market leader that is already dominant in their home market, but may not have achieved that globalization to the degree that they want. We then assist the company and help them grow. We can help them grow in many regions, whether that’s in North America, Europe or Asia. However, our particular expertise is in growth into China.

 

What challenges would you say you and XIO encounter on a regular basis? How are these resolved?

The challenges that we and XIO face on a regular basis are connected to the intense competition on the market. There’s also a misconception that we focus solely on Chinese companies, which couldn’t be farther from the truth. In fact, we do not invest in China at all; our growth opportunities are bringing companies from the West into global high-growth markets – and specifically China.

 

How does your experience in alternative investments inform your decision-making strategy at XIO Group?

Having worked at large firms previously, such as Bain Capital, JP Morgan and Blackrock, I understood how large institutional players assess and go after certain markets for alternative investments, so this has given me a great foundation. However, I think running your own firm is very different, as you are an entrepreneur as well and it forces you to be “scrappy”. Effectively, you fight harder when it is your own firm because you own your destiny – whether it be success or failure.

 

As CEO, how do you ensure you are directing the company in the correct direction? How do you advise your team to make the correct decisions for the company?

I would simply state that as CEO, my job is to set broad goals and principals, and then allow my team to work within our framework to achieve those objectives. For example, looking at where we want to diversify our business, how we want to grow our platform, the types of businesses we look for and how we build out our portfolio – these are the strategic areas I focus on. For other decisions, we allow that to be done more on a deal team basis. I look to give our colleagues the knowledge and responsibility, as well as opportunity to bring forward their ideas on what a good investment platform would be. With that also comes the accountability.

 

What does a typical day look like for you? What daily challenges do you encounter and how do you overcome them?

I tend to be travelling for 2 weeks of the month but my days are similar. I start with calls to Asia for the first few hours, then I deal with meetings in the UK and in the afternoon, and then I deal with calls back to the USA. My time is divided between approximately a third spent on client type of items, a third on existing portfolios and a third on new and potential investment opportunities.

The main challenge as a CEO is how to prioritise. You have to take in a lot of information and really prioritise what’s the most important thing that only you can deal with at that time and then delegate the remaining tasks to others.

 

What are your strategic goals and vision for XIO’s future?

Our goal is to continue to grow out our platform, at first in private equity. Our long-term objectives are related to eventually diversifying into other alternative assets classes, similarly to how I have done it at other firms and overtime, really build a diversified alternative investments platform.

About XIO

XIO Group is a global multi-billion dollar alternative investments firm headquartered in London, United Kingdom. XIO Group’s strategy is to identify and invest in market-leading and high-performing businesses located across Europe and North America and to partner with management to help these companies in capitalizing on untapped opportunities in fast growing markets, particularly those in Asia. XIO Group has operations in the United Kingdom, Germany, Switzerland, Israel, Hong Kong, Mainland China and the United States of America.

 

About Joseph Pacini

Joseph Pacini is the Chief Executive Officer and Co-Founder of XIO Group. Prior to XIO Group, Joseph was Managing Director and Head of BlackRock Alternative Investors (BAI) for Asia Pacific. Based in Hong Kong, Mr. Pacini was responsible for developing client-focused alternative investment strategies as well as the continued growth of BlackRock’s USD $24 billion alternatives platform and product offering in Asia.

Prior to joining BlackRock in 2012, Joseph was the Head of JP Morgan Alternative Investments Group in Asia. In that capacity, Mr. Pacini’s responsibilities included the business development, origination, due diligence and structuring of hedge fund, private equity, real estate and direct deal opportunities for its USD$10 billion platform.

Before moving to Asia, Mr. Pacini was a member of the JP Morgan Private Bank Alternative Investments Due Diligence Team based in New York. Prior to joining JP Morgan in 2003, Joseph was an Analyst at the private equity firm Bain Capital, LLC. in London, England.

Joseph received a Bachelor of Science in International Business from Brigham Young University where he graduated with University Honours.

Website: http://www.xiogroup.com

Linear Investments is a Prime broker and executing broker providing services to other brokers, private banks and similar financial institutions and also focusing on services to the Alternative Investment (Hedge fund) sector. These include execution (Desk and DMA), outsourced execution, middle and back office services, and all the normal prime brokerage support including helping to raise capital for associated funds.

Here we hear from the company’s Founder and Chairman Jerry Lees who discusses trends within prime brokerage and his predictions for the sector’s future.

 

What has been happening with Linear Investments since we last spoke a year ago?

Linear has seen significant growth in custody and discretionary management services from several financial services and private banking clients. Once these clients are on boarded, we expect to see significantly increased deal flow and other clients following the same course with Linear.

 

What have been the key changes that the prime brokerage landscape has seen recently? How has Linear responded to these changes?

The number of early stage and new start-ups has diminished. At the same time, the larger global prime brokers are starting to concentrate on larger hedge fund clients with high turnover and therefore - higher margins. This has accelerated the number of mid-sized hedge funds looking for services from Linear. In addition, the intense requirements of Mifid II is forcing several funds to look more closely at outsourcing to deal with the reporting and monitoring requirements which Linear has been investing in extensively. We expect to see increasing activity in this area. As we draw closer to Mifid II in 2018, many smaller and even medium-sized firms will not have the resources and technology to meet these demands from the regulator.

 

Looking into the near future, what do you anticipate for the sector?

There will be a number of smaller and medium-sized funds giving up due to the additional cost burdens of regulation and the fact that it is increasingly difficult for smaller funds to raise capital. Small and medium-sized funds will have to seek new prime broker arrangements with the likes of Linear as the larger Prime Brokers consolidate, even further as Basle III draws close at the beginning of 2019. This trend will accelerate significantly as this deadline approaches.

 

How would you evaluate your role as Chairman and its impact over the last year or so?

As chairman, I’m tasked with looking at how Linear adapts to the constantly changing market profile to ensure we are making the capital and resource investment we need to cope with the changes. We have invested intensely in technology for MiFID II, Transaction Cost Analysis (real-time), market surveillance, pre and-post-trade risk and continue to invest heavily in these areas. In addition, we have increased our compliance team staff and expertise both in house and through our consultancy partners.

 

What further goals are you currently working towards with the company?

For the future – we intend to consolidate our position in providing investment management services in the discretionary, advisory and custody areas and build on our capital introduction strengths to help support our hedge fund clients.

 

Website: http://linearinvestment.com/

About Finance Monthly

Universal Media logo
Finance Monthly is a comprehensive website tailored for individuals seeking insights into the world of consumer finance and money management. It offers news, commentary, and in-depth analysis on topics crucial to personal financial management and decision-making. Whether you're interested in budgeting, investing, or understanding market trends, Finance Monthly provides valuable information to help you navigate the financial aspects of everyday life.
© 2024 Finance Monthly - All Rights Reserved.
News Illustration

Get our free monthly FM email

Subscribe to Finance Monthly and Get the Latest Finance News, Opinion and Insight Direct to you every month.
chevron-right-circle linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram