When it comes to trading CFDs, inflation is one of the key factors that traders need to consider. In this article, we will explore how inflation affects CFD trading in Australia and look at some of how you can adjust your trading strategies to take inflation into account.
What is inflation?
Inflation is a measure of the increase in prices of goods and services over a given period. It is usually expressed as a percentage and is used as an indicator of the economy’s overall health. When prices are increasing, there is more inflation in the system, which can have several effects on businesses and consumers.
How does inflation affect CFD trading?
Inflation can have several effects on CFD trading. Firstly, it can cause the value of currencies to fluctuate as traders attempt to protect themselves against the impact of inflation. In addition, rising prices can lead to increased volatility in the markets, as investors look to make quick profits from price changes. This can be particularly true for commodities, as the prices of commodities can be impacted more quickly by changes in inflation than the prices of other goods and services.
If inflation is high, it may be harder for businesses to profit. This could lead to lower share prices and increased volatility in the stock market. It’s essential to keep an eye on inflation when trading CFDs. If you’re predicting that prices will rise, you may want to wait until higher inflation. If you’re predicting that prices will fall, you may want to wait until lower inflation.
How can traders adjust their strategies?
There are several ways that traders can adjust their strategies to consider the impact of inflation. One way is to focus on short-term trades, as these are less likely to be impacted by changes in inflation. In addition, traders can look to trade commodities that are less likely to be impacted by inflation, such as gold. Finally, traders can also use derivatives such as options and futures contracts to help protect themselves against the impact of inflation.
The long position
Several different strategies can be used when CFD trading in Australia. One common strategy is to use a long position when the market is trending upwards and a short position when the market is trending downwards. This type of strategy can help catch short-term price movements and profits.
Another strategy that can be used when CFD trading in Australia is to use technical analysis to identify patterns in the market. This approach involves studying charts and indicators to try and predict future price movements. Technical analysis can help identify buying and selling opportunities and gauge the overall trend of the market.
A third strategy used when CFD trading in Australia is to use fundamental analysis. This approach involves analysing factors that could affect the price of a security, such as economic indicators and company earnings. Fundamental analysis can be used to identify long-term opportunities in the market and protect against short-term volatility.
Use a stop-loss order
Whichever strategy you choose, it is important to remember to always use a stop-loss order to protect your investment. A stop-loss order is an order to sell a security if it falls below a certain price. This ensures that you do not lose too much money if the market moves against you.
Inflation is an important factor that traders need to consider when trading CFDs. In Australia, inflation can affect the markets, including causing currencies to fluctuate and increasing volatility. There are several ways that traders can adjust their strategies to deal with the impact of inflation, including focusing on short-term trades and trading commodities that are less likely to be impacted. Beginner traders should use an experienced and reputable online broker from Saxo Bank.