Here’s 3 derivatives plays for traders who want to give the stock market a rest
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The stock market is one of the best ways to grow your wealth over the long term, but those willing to seek profits from daily fluctuations may find that there are alternatives.
Trading in derivatives for example, is one way for risk tolerant traders to potentially earn short term gains.
By definition, derivatives allow you to take exposure in a security you don’t actually own by using the power of leverage or margin.
This means you don’t need to cough up the full cash amount for a trade, but trader beware, because leverage is a double edged sword that could deliver both magnified profits as well as losses.
There are several derivative trading platforms out there including Eightcap, a Melbourne based global broker specialising in CFDs, forex, cryptos, indices, shares and commodities.
Zoran Kresovic, Eightcap’s Regional Sales Head for APAC, is seeing a lot of opportunities right now for derivatives traders in this current environment.
And while he can see all the trade flows on the Eightcap platform, he has refrained from providing direct buy or sell tips.
Below are some of the flows and trends that he’s seeing on the Eightcap platform right now.
“At the moment, we’re seeing a lot of flows going into the US dollar,” Kresovic told Stockhead.
“Most recently we’ve had US dollar come off a little bit because the market thought that inflation was softening up.
“But as we saw, that wasn’t the case and the story is actually changing right now, and so we’re seeing a lot more strength come into the US dollar.
“This means that all the major currency pairs against the US dollar are softening up, including British pound, Aussie Dollar, Canadian Dollar New Zealand dollar.
“So right now, the flows we’re seeing suggest going US dollar long and everything else short.
“And I think the market is a lot more prone to news at this point in time. And the news that’s been coming out over the last couple of weeks indicate that we might see more than three interest rate rises in the US.
“The Aussie dollar has also weakened lately against the USD, and on the technical charts, we’re seeing a clear downtrend in play there.
“At this point in time, US68c would be the key support level on the chart. However, if Aussie doesn’t hold there, we might actually see it drop at least the 65 level mark.”
The AUD is trading at US67.22 at the time of writing.
Commodity trading involves the buying and selling of raw materials on a number of exchanges, and is usually traded as a futures contract.
“We’ve seen gold prices start to come off as well since the February highs of around US$1,950 an ounce,” said Kresovic.
“It looks like the next level of support for consolidation should be around US$US1,800, and that’s actually our critical support level on the charts.
“In normal circumstances and in a normal playbook, gold is a hedge against the risk of inflation.
“But what we’re seeing at the moment is gold being deflationary.
“What we’re seeing is flows are going out of gold and the rest of the commodities, and moving into buying the US dollar.”
Gold spot is trading at US$1,812 qn ounce at the time of writing.
The West Texas Intermediate Crude Oil (WTI) is one of the two global benchmark prices (the other is Brent).
The WTI oil is known for its lower concentration levels of sulphur and is produced and refined in North America.
The WTI futures contracts are traded on the New York Mercantile Exchange (NYME).
“What we’re seeing in oil is a consolidation around the US$75 a barrel mark, and the market has been trading sideways around that level,” Kresovic told Stokchead.
“We’ve seen enormous oil price movement going all the way up to US$125, but that has come off parity (US$100) and is consolidating around US$75.
“This is probably the level where it’s going to hold for at least a little bit longer until we get more signals from Fed Reserve in the US.
“Once the Fed provides a little bit more direction in terms of inflation, then oil will probably move in one direction or another.”
“But the way things are unfolding right now, we could see oil go between US$80 to US$85, but that’s probably a bit of an upside to where it is at the moment.
“There is a bit of resistance around the US$85 mark, and if it consolidates there, then I guess a lot will depend on the interest rates and everything that comes out of the US.
“But overall, we’re probably seeing a little bit more upside than downside right now in oil.”
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.