Conventional investments are rather linear. You take your hard-earned GBPs, and you invest them with a broker, or a trading platform on your choice of preferred assets. You have several options at your disposal, including commodities, indices, currencies, or stocks. In order to generate a positive return on your investment, the underlying asset must appreciate in value, all things being equal.
Seems simple enough, but with the extreme volatility in the financial markets, this may not always be the best option for you. For starters, global markets are subject to geopolitical shocks such as tensions with North Korea, disruptions to the global energy supply, interest rate shocks to the economy, etc. In fact, there are multiple reasons why traditional investments may not always be the most sensible option for everyone.
Interesting Trends with the FTSE 100 and the Sterling
The FTSE 100 index has displayed some interesting tendencies over the past 1 year. On February 20, 2017, the FTSE 100 index was trading at 7,299.86, and it is hovering around precisely that level 1 year later at 7,294.70. Of course, in between, the FTSE rallied to a high of 7,778.64 on January 12, 2018. The correlation between the FTSE 100 index and the GBP is an interesting one. When the GBP appreciates, the FTSE 100 index typically declines. The reason for this is that 70% of the companies listed on the FTSE 100 index are generating their revenues abroad.
When these funds are repatriated back to the UK, they are worth markedly less in GBP. Hence the inverse relationship between the two. In recent weeks, UK investors noticed a sharp reversal in the fortunes of the cable. The cable – GBP/USD – has all but erased losses it was subjected to after the ill-fated June 23, 2016 Brexit referendum. The cable plunged to a 31-year low after trading at 1.47/1.48. Today, the GBP/USD pair is trading around 1.40.
What Are Some of the Strongest Performing Stocks on the FTSE 100 Index?
The FTSE 100 index features many top-performing equities like Segro PLC which spiked 6.48%, and was last trading at 591.20 pence. The top risers on the FTSE 100 included NMC (up 4.45%), WPP (up 4.18%), EVR (up 2.89%), CCH (up 2.80%), PSON (up 2.76%), RB (up 2.69%), and VOD (up 2.40%). The top 5 fallers include the following companies: RRS (down 2.14%), ANTO (down 1.89%), BLT (down 1.29%), CCL (down 1.05%) and RR (down 0.95%). It is notable that mining and commodity companies top the list as worst fallers on the FTSE 100 index. They include the following companies Randgold Resources, Antofagasta Holdings, BHP Billiton PLC, and Rio Tinto PLC.
How Can You Protect Your Investments with Alternative Trading Strategies?
Given the volatility in global markets, it is imperative to have a hedge against volatility in the form of a contrarian investment. A contrarian investment practice goes against the grain by providing you with something entirely different to the norm. CFDs fit the bill perfectly. They are contracts for difference, and traders can benefit from this CFD definition before getting started. As derivative trading instruments, CFDs do not require you to buy the underlying asset. You’re purchasing a contract for delivery at a future date, based on your assumption of where you believe the asset price will be moving. Assets that are likely to be bullish will be matched with call options and those that are likely to fall in price will be matched with put options. CFDs are derivative trading instruments – you simply speculate on the price movement of the underlying asset. If you hold gold shares such as BHP Billiton, Randgold Resources etc., you could protect those investments with gold CFDs in the opposite direction. Now that’s a strategy worth adopting.