How can CFDs be combined with traditional share dealing to reduce risk?
Investors can use CFDs to reduce the risk of unexpected market movements. For example, you may have a long term share portfolio that you know you want to keep hold of, but you are worried that it may lose value in the short term, because you think the markets are heading down. You can take out a CFD that could profit on a drop in the share price and help offset the loss on the physical holding. At the same time this move might assist you in making a long term gain. This technique is called ‘hedging’ your risk and is a major investment strategy, used by experienced investors alongside their equity portfolios.
