18 November, 2020 | Axiory Global – Now that the election is over, markets are expected to pick up, as the volatility of the election simmers down. Wall Street refers to this trend as the ‘presidential cycle’, which is based on historical data that shows a downturn in the markets before and after the elections, and an uptrend after the first two years of the president’s term. U.S. bank data suggests that average gains in an election year are closer to 6%, compared to 7.5% gains in other years. That’s great news for traders who can take full advantage of the timing after an election to take long positions.
During this window, traders tend to gravitate towards stock CFDs because of their high leverage, lower margin requirements, and a wide range of trading assets. Here’s a closer look at the top reasons traders choose to trade CFDs after a U.S. election.
Advantages of trading stock CFDs
A Contract For Difference (CFD), allows traders to profit from price fluctuations without owning the underlying asset. It calculates price changes but doesn’t consider the value of the underlying asset. By trading CFDs after the elections, traders have several advantages on their side:
1. Trading with leverage
With more traditional stock trading, traders have to invest 100% of their capital into buying that stock. However, with CFD trading, you only need a fraction of your capital to open a position. The rest of your capital requirements are covered by the leverage the broker extends to you. Leverage enables you to make a larger investment with a smaller amount of money.
That means instead of paying the full value of the position, you only need to pay a percentage of the position, an initial deposit otherwise referred to as the ‘initial margin’. Generally, that margin is about 5%, but the initial margin requirements will differ for each market, asset type, trading instrument, and intended trade size of the position. Trading on margin is one of CFDs main advantages. It means the broker you’re trading with covers the rest of the capital requirement of the CFD with the leverage they offer you.
2. Going long and short
A CFD trade consists of a contract to exchange the difference between the opening and closing prices of an instrument, so it is more flexible than actual stocks in that it allows you to trade on the markets whether they’re going up or down.
When trading direct stocks, investors are always hoping prices continue rising so their shares gain value, but with stock CFDs, a trader can also open short positions which can profit if the market falls. So, stock CFD traders are in an excellent position to take advantage of both falling and rising markets.
3. Managing risk more easily
One of the great things about CFDs is you can limit the risk you’re willing to take with various tools, like stop loss and take profit orders. You set the stop loss and your position automatically closes at that value which you determine. Similarly, you can place Stop Entry and Limit orders to help you enter the market at a level you choose. This gives traders more leeway and flexibility in managing their risk even when they’re not actively trading.
As always, the key to being a successful trader is to design approaches and create portfolios that adapt to changing market conditions. The U.S. election has had a major impact on the economy. And now as we emerge from the uncertainty and volatility of one of the most heated presidential elections in modern times, traders can relax a little bit, and take advantage of this rise in the markets that historical data forecasts are around the corner.
About Axiory Global
Since its inception in 2011 Axiory has offered value packages for traders, including a minimum$50 first deposit for all account types, which has remained cemented despite the company’s exponential worldwide growth. This year, the brokerage announced its plans to further improve trading conditions and enhance traders’ experience, staying true to its promise, Axiory has delivered new announcements on a monthly basis including the launch of Axiory Intelligence, the group’s independent, market news and analysis portal. Their latest update has been the addition of US Stock CFDs on their MT4 platform.