Using Pairs Trading to Profit From Volatile Markets

LONDON, June 24, 2012 /PRNewswire/ --

Global markets - whether equities, currencies or commodities - have seen some of the most volatile periods over the past few weeks.

Below, we look at how you can adapt your trading strategy with a City Index CFD trading account.

Market Volatility

As mentioned above, in the past few weeks we have seen some of the most volatile periods in the global markets.

This is mainly due to a confluence of factors including the uncertainties in Europe, the fragile rate of growth in the US and the seeming slowdown in China.

The Australian stock market and the Australian dollar are by no means exempt from what's rocking international markets.

Trading Opportunities

However, despite all the market volatilities, City Index Chief Market Analyst Peter Esho says there are still opportunities in some sectors or stocks which have held their ground.

For example, the Australian banking sector is still being supported by traders and investors because of their dividend income and relatively stable performance compared to other sectors.

Paris Trading Strategy

Using a pairs trading strategy, investors and traders may still participate and take advantage of trading opportunities despite the market volatility.

The banking sector in Australia is dominated by the big four banks - Commonwealth Bank of Australia (CBA), Westpac (WBC), National Australia Bank (NAB) and ANZ Bank (ANZ).

Pairs trading in the banking sector would involve going long one of these banks e.g. buying CBA share CFDs and then going short one of the others, e.g. selling NAB.

CBA is enjoying steady growth and technology advantage over its peers.

On the other hand, NAB seems to be burdened by its long-standing exposure in the UK financial sector.

So, going long CBA and going short NAB will be a potential pairs trading strategy, which means any downside on NAB will be offset by the strong performance in CBA.

This is if you want to take advantage and be actively trading the Australian banking and finance sector, which is a major contributor to the overall domestic market.

Trading with City Index Australia

With a City Index Australia CFD trading account, you can place multiple orders to execute a pairs trading strategy.

You may also use pairs trading in Index CFDs such as the ASX 200, Hang Seng, Nikkei 225, the US100 and the UK100.

Though many of these indices tend to follow each other's direction, there are instances where they could go separate ways and that may present a pairs trading strategy in a global scale.

Trading CFDs has a greater degree of risk and is not suitable for all investors.  You may not own the underlying asset.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

City Index is a leading global provider of margined foreign exchange and CFD trading. As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. To learn more visit: http://www.cityindex.com.au/