CFDs Using a CFD broker to play global correlations

CFDs Using a CFD broker to play global correlations

As mentioned previously, one of the great things about trading the CFD market is the ability to take advantage of global assets and more importantly in this example, correlations. For people who use standard Forex brokers, the world is limited to trading currencies only. While currency markets certainly do offer great trading opportunities, they aren’t the only ones that are available, and if you understand global markets and the way that they interact, using a CFD broker adds a lot of versatility and flexibility in your trading opportunities.

In this example, I’m looking at the Australian dollar against the US dollar. This of course is one of the major Forex pairs, in a market that most of you will be familiar with. The Australian dollar is highly influenced by the gold markets, as Australia is one of the larger producers of gold in the world. It is because of this that many currency traders will buy and sell the Australian dollar right along with gold. If gold rallies, the Australian dollar will typically strengthen as well, as it shows that there will be high demand for one of Australia’s largest commodities. Beyond that, if you think about how gold buying will be done, the Australian companies need to be paid in Australian dollars. This means that people are changing out their home currencies for Australian dollars. This puts upward pressure on the AUD/USD pair, and for that matter all Australian dollar pairs where it is the quote currency. However, the exact opposite is true, meaning that if gold falls it is quite often a sign that the Australian dollar will fall as well.

However, if you find yourself a bit late trading the Australian dollar itself, will you might be able to do is get involved in gold and traded accordingly if it is lagging, something that is quite possible. Over the longer term, both markets move in the same direction and you can take advantage of inefficiencies when you spot them if you have the ability to trade both markets. The CFD broker allows you to flip back and forth, meaning that you can truly trade the global markets. Obviously, there are other correlations that you can get involved with such as the Canadian dollar and crude oil, the Mexican peso and crude oil, and many others. By using a CFD broker, you allow yourself the opportunity to not only take a trade that is showing inefficiency, but also pay attention to fundamental factors for currencies by flipping through charts.

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