1.

0 Introduction

A Contract for Difference (CFD) is an agreement between a trader and an investment bank or a spread-
betting firm to exchange the difference in value of a specified financial instrument between its opening
and closing prices (Financial Times, 2018). It is a form of derivative trading which allows traders to
speculate on the price movement in the financial markets (CMC, 2018). The main benefit of CFD
trading is that traders are allowed to trade on margin, in which traders can go short (sell) or go long
(buy) depending on speculation of price. Trading on margin means traders only need to deposit part of
the total amount of the trade in order to open a position. This allows traders to leverage on his
investments and increase the returns when price moves in his favor.

Despite having such benefit from CFD trading, there are some risks involved which needed to be taken
into consideration by traders. Market risk is the risk in which even the most educated investors may not
avoid. This is commonly due to unexpected information or changes in government policy that lead to a
significant unfavorable impact on the returns or may even cause huge loss. Besides that, as a result of
market volatility, gapping could occur when there is a shift of price unexpectedly without passing
through two levels in between (CMC, 2018). This could result in the execution of stop-loss order at
unfavorable prices, which could be much higher or lower, depending on the direction of your trade.
Lastly, trader must understand that trading in CFD does not give any voting rights like how normal
shareholders have (InterTrader, 2018). This also means that traders have no authority in determining
policy directions of the underlying company. As a result, traders must accept the results when markets
dictate the prices.

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2.1 Commodities: OIL

Chart 1.1: Analysis of OIL in 4 Hours Chart

Based on the Chart1.1 by using technical analysis, the commodity oil was going on an uptrend. After it
reaches the resistance level of 76.66, the bear enters the market to pull the price down continuously.
This indicates the investors that short order should be executed to take profit at this situation. As
investors to exit the bear market by heavy selling, the price dropped to a support level of $70.76.

According to CNBC (2018), while stocks bounced back across the world, supported by earnings
expectations, the oil prices fell when there is evidence on higher U.S oil production and an increase in
U.S crude inventories on 16 Oct 2018. The oil prices fell by 0.39% to $71.50 per barrel when US Energy
Information Administration (EIA) announced that seven major shale basins is expected to increase
production by 98,000 bpd in November making it a record of 7.71 million. Hence, a short position was
made on 17 Oct 2018 at the price of $72.02 because it is expected that the oil price will drop further.

According to the American Petroleum Institute (API), U.S because U.S crude stockpiles are expected
to rise by about 1.1 million barrels. Subsequently, the oil price was trading under $70 on Wednesday
reacting to the release of the US weekly crude inventories. It set the market for a surprise when the EIA
showed the buildup of 6.5mil barrels which is 5mil more than forecasted (Esparza A., 2018).

Prior to this release, Saudi Arabia pushed oil prices lower after the disappearance of the journalist,
Jamal Khashoggi, who is a U.S resident after he entered the Saudi consulate. The diplomatic tensions
escalated when President Donald Trump has threatened ‘severe punishment’ by retaliating against any
sanctions. This has prompted further uncertainty into the oil market.

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In order to minimize loss, investors who have long position would have short it in this situation.
However, my short position has led to a huge gain of profit as these events have impacted the prices
down continuously. Hence, the short order of Oil is still ongoing at the price of $69.36 as it is expected
to go further downwards.

Chart 1.2: Analysis of OIL in 1 Hour Chart

Picture 1.1: The Trading Result of OIL in PLUS500

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2.2 Forex: EUR/USD

Chart 2.1 Analysis of EUR/USD in 1 Hour Chart

Chart 2.2 Analysis of EUR/USD in 1 Hour Chart

Based on technical analysis, the Chart1.1 shows EUR/USD has formed an ascending trend line. In Chart
2.2, three black crows pattern appeared indicating a bearish reversal pattern, the price dropped to a
support level at 1.1534. This indicates buyer to start buying to push up price.

According to The Wall Street Journal, the Commerce Department announced that the retail sales has
rose by 0.1% in September which undershot the economists’ expectations for 0.7% increase (Torry H.,
2018). Economists evaluated that Hurricane Florence which caused landfall in mid-September may
have soften the sales figures. Eventually, the release of downbeat U.S September retail sales has lower
demand for USD.

Thus, long position was executed at 1.15575 on 17 Oct because both technical and fundamental
justifications signal to have a long trade.

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However, EUR/USD dropped to $1.1534 as there was no-deal in sight on the EU Summit. Expectation
on the announcement of framework of a deal seems to be off the table as the Irish border impasse has
yet to be resolved, leading to a talk of no-deal Brexit. (Cawley, 2018). On the other side of the pair, the
release of the Federal Open Market Committee (FOMC) minutes gives clues on the monetary policy
and economy for 2019. The Fed Chair Powell’s statement infused his thoughts on inflation and rate
hikes in 2019. All these events contributed to a rise in dollar and drop in euro, further moved EUR/USD
to a new session low at 1.15088 (Michalowski G., 2018).

In order to avoid further losses, I closed my ‘buy’ position with a loss of RM3,969.07.

Picture 2.1: The Trading Result of EUR/USD in PLUS500

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2.3 Shares: Facebook

Chart 3.1 Analysis of Facebook in 1 Hour Chart

Based on technical analysis, Chart3.1 (1) shows three black crows pattern which indicates bearish
reversal pattern in the market. This allows investors to take profit by selling off, further pushes the price
down continuously. In (2), the 10-Days Moving Average (MA) crosses above the 20-Days MA, which
indicates the momentum is shifting to the upwards direction, eventually triggers a buy signal. As
investors tend to start buying, it pushes the price up.

Facebook’s reputation got hit when it experienced a significant data breach by hackers, following by
87mil users’ data being accessed by data analysis firm, Cambridge Analytica without its consent. Coho
Capital then capitalized on the pullback in Facebook stock by doubling its stake after these incident.
Furthermore, Gubagoo has announced a new digital retailing solution which is called Gubagoo Virtual
Retailing. It enables consumers to build car buying deals on Facebook.

Hence, long position was made on Facebook shares at 160.16 as it is supported by both technical and
fundamental analysis. The take profit and stop loss was put at 163.00 and 153.50 respectively.

However, Facebook admitted that it has artificially inflated its average video viewing time averages up
to 60% to 80% in September 2016. Recently, the updated lawsuit had uncovered evidence showing
Facebook actually knew that they have been providing inaccurate data metrics all the way back in
January 2015. This caused misleading to advertisers into thinking Facebook was a better platform in
terms of video viewing. To make it worse, majority of Facebook investors are pushing Mark Zuckerberg
out as chairman to reestablish trust with investors.

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Hence, I have decided to minimize further losses by closing the position at $154.71, which amount to a
total loss of RM11,855.53 (Picture 3.1).

Picture 3.1: The Trading Result of Facebook in PLUS500

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2.4 Index: USA30

1
2

Chart 3.1 Analysis of USA30 in 1 Hour Chart

Based on technical analysis, Chart3.1 (1) shows few strong bullish candlestick pushing prices up in
which three white soldiers candlestick are identified. According to Carter (2016), this ascension shifts
from bear market to bull market. In this situation, investors tend to believe that price will continue to
ascend. However, the bull time ended up at the resistance level of 25,850. In (2), the downtrend resulted
by the 10-Days Moving Average (MA) crosses below the 20-Days MA. This downward momentum
triggers a sell signal in which a short position was made at 25,674 while take profit and stop loss are set
at 25,350 and 25,850 respectively. The decision to short was also supported by the long awaiting
meeting minutes from the Federal Reserve. The market will be digesting on the minutes while
anticipating on the data regarding labor market.

The short decision has gone along with our expectation as price continues to fall when the Fed minutes
showed that policymakers have doubts on the path of future economy. In fact, the policymakers agreed
on the need to hike rates and planned to gradually increase interest rates in December till 2019. Besides
that, the World Trade Organization warned of the economic risk of trade wars between the U.S and
China. As China registers lower growth of 6.5% in the third quarter, it raised concerns that the trade
dispute will dampen the performance of the world’s second largest economy.

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On 19 Oct, there are few bullish candlestick pushing the price up as investors look forward to data and
corporate earnings results. Therefore, my long position led me to gain profit of RM13,598.65 in order
to avoid further losses.

Picture 4.1: The Trading Result of USA30 in PLUS500

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3.0 Conclusion

Fundamental analysis and technical analysis were used in the whole process of CFD trading. Despite
the fact that technical analysis analyses statistical trends from trading activity, fundamental analysis
should be used simultaneously to get better in depth understanding on the market movements. This is
because fundamental analysis relates more on news or announcement that provide the economic
outlooks of an underlying asset you trade on. As a result, the outcome of this trading shows 1 on-going
profitable trade, 2 losing trades and 1 profitable trade.

1563 words

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4.0 Reference List

Campos R. (2018). ‘Global Markets – Stocks Rebound with Earnings in Focus; Oil Slips’ [Online].
Available from: https://www.cnbc.com/2018/10/16/reuters-america-global-markets-stocks-rebound-
with-earnings-in-focus-oil-slips.html [Accessed 17 October 2018]

Cawley N. (2018). ‘EURUSD Price: Driven by Brexit and FOMC Minutes’ [Online]. Available from:
https://www.dailyfx.com/forex/market_alert/2018/10/17/EURUSD-Price-Driven-by-Brexit-and-
FOMC-Minutes.html [Accessed 18 October 2018]

CMC (2018). ‘What Is a Contract for Difference?’ [Online]. Available from:

https://www.cmcmarkets.com/en/learn-cfd-trading/what-are-cfds [Accessed 17 October 2018]

CMC (2018). ‘Risk of CFD Trading’ [Online] Available from: https://www.cmcmarkets.com/en/learn-

cfd-trading/risks-of-cfds [Accessed 17 October 2018]

Esparza A. (2018). ‘Crude Oil Drops After Surprise U.S Weekly Buildup’ [Online]. Available from:
https://www.marketpulse.com/20181017/crude-oil-drops-surprise-us-weekly-buildup/ [Accessed 18
October 2018]

Financial Times (2018). ‘Definition of Contract for Difference’ [Online]. Available from:
http://lexicon.ft.com/Term?term=contracts-for-difference [Accessed 17 October 2018]

Gubagoo (2018). ‘Gubagoo Announces its New and Revolutionary Virtual Retailing Solution to
enable Online Car Buying from Dealership Websites and Facebook’ [Online]. Available from:
http://globenewswire.com/news-release/2018/10/15/1621566/0/en/Gubagoo-Announces-its-New-and-
Revolutionary-Virtual-Retailing-Solution-to-enable-Online-Car-Buying-from-Dealership-Websites-
and-Facebook.html [Accessed 19 October 2018]
InterTrader (2018). ‘CFD Trading: Benefits & Risks’ [Online]. Available from:
https://www.intertrader.com/eu/cfds/why-trade-cfds/cfd-trading-benefits-risks/ [Accessed 17 October
2018]
Investing. (2018). ‘Top 5 Things to Know in the Market on Thursday’ [Online]. Available from:
https://www.investing.com/news/economy-news/top-5-things-to-know-in-the-market-on-thursday-
1649235 [Accessed 20 October 2018]
Investing. (2018). ‘Top 5 Things to Know in the Market on Friday’ [Online]. Available from:
https://www.investing.com/news/economy-news/top-5-things-to-know-in-the-market-on-friday-
1651110 [Accessed 20 October 2018]
Johnson C. (2018). ‘Oil Falls on U.S Shale Output, Expected Stocks Data’ [Online].
https://www.cnbc.com/2018/10/16/reuters-america-update-6-oil-falls-on-u-s-shale-output-expected-
stocks-data.html [Accessed 18 October 2018]

Meyer D. (2018). ‘Facebook Admitted That It Was Inflating Video Metrics’ [Online]. Available from:
http://fortune.com/2018/10/17/advertisers-facebook-video-metrics/ [Accessed 19 October 2018]
Michalowski G. (2018). ‘Dollar is Little Higher Following FOMC Meeting Minutes’ [Online].
Available from: https://www.forexlive.com/technical-analysis/!/dollar-is-little-higher-following-fomc-
meeting-minutes-20181017 [Accessed 18 October 2018]

Neiger C. (2018). ‘Google Is Starting to Learn That Users Want Privacy. Facebook Still Doesn't Get
It’ [Online]. Available from: https://www.fool.com/investing/2018/10/13/google-starting-learn-users-
want-privacy-facebook.aspx [Accessed 19 October 2018]

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Salinas S. (2018). ‘Major Facebook Investors Want Mark Zuckerberg Out as Chairman’ [Online].
Available from: https://www.cnbc.com/2018/10/17/public-fund-investors-want-mark-zuckerberg-out-
as-chairman.html [Accessed 19 October 2018]
Torry H. (2018). ‘U.S Retail Sales Rose Less Than Expected in September’ [Online]. Available from:
https://www.wsj.com/articles/u-s-retail-sales-rise-slightly-in-september-1539607053 [Accessed 18
October 2018]

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