CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.09% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The vast majority of retail investor accounts lose money when trading CFDs.
76.09% of retail investor accounts lose money when trading CFDs with this provider.

How to choose which stock CFDs to trade?

Choosing which stock CFDs to trade involves a combination of research and analysis to determine which stocks are likely to provide the best return on investment. 

Here are some factors to consider when making this decision:

Industry Analysis

When considering which stock CFDs to trade, it’s important to evaluate the industry the company operates in. For example, let’s say you’re interested in trading CFDs on technology stocks. You might want to consider factors such as market trends, competition, and regulatory issues that could impact the industry.

Market Trends:

You might look at trends such as the increasing use of technology in everyday life, the growth of e-commerce, and the shift towards cloud-based services. These trends could indicate potential growth for companies that provide these services.

Competition:

You might research the major players in the industry and consider their market share, growth potential, and competitive advantages. For example, in the technology industry, you might compare companies like Apple, Microsoft, Amazon, and Alphabet (Google).

Regulatory Issues:

You might consider the regulatory environment in the industry, including laws related to data privacy, antitrust regulations, and intellectual property protections. For example, recent regulatory scrutiny of social media companies could impact their profitability and stock prices.

Fundamental Analysis:

Fundamental analysis involves evaluating the financial health and performance of a company. You might consider metrics such as revenue, earnings, profit margin, debt-to-equity ratio, and price-to-earnings ratio.
  • Revenue: This is the total amount of money a company generates from its operations. Investors generally want to see consistent revenue growth over time.
  • Earnings: This is the profit a company earns after all expenses have been deducted. Investors want to see consistent earnings growth over time.
  • Profit margin: This is the percentage of revenue that a company keeps as profit. A high profit margin is generally considered a good sign.
  • Debt-to-equity ratio: This measures how much debt a company has compared to its equity. A high debt-to-equity ratio can indicate that a company is carrying too much debt.
  • Price-to-earnings ratio: This is a measure of how expensive a stock is relative to its earnings. A high P/E ratio can indicate that a stock is overvalued.

Let’s take the tech giant Apple as an example. A fundamental analysis of Apple might reveal that the company has a strong balance sheet with high revenue and earnings growth, a healthy profit margin, and a low debt-to-equity ratio. This could be a good sign for investors considering trading Apple CFDs.

  • Company: Apple Inc. (AAPL)
  • Revenue: In fiscal year 2021, Apple generated revenue of $365.8 billion, up from $274.5 billion in fiscal year 2020.
  • Earnings: In fiscal year 2021, Apple reported net income of $86 billion, up from $57.4 billion in fiscal year 2020.
  • Profit Margin: Apple’s gross profit margin was 41.8% in fiscal year 2021.
  • Debt-to-Equity Ratio: Apple has a debt-to-equity ratio of 1.62, which indicates that it has more debt than equity.
  • Price-to-Earnings Ratio: Apple’s P/E ratio is currently around 28, which is lower than the average P/E ratio for the technology sector.

Based on this analysis, you might conclude that Apple is a financially strong company with a history of growth. However, the high debt-to-equity ratio and relatively low P/E ratio could indicate some potential risks.

Technical Analysis:

Some common technical indicators include moving averages, relative strength index, and Bollinger Bands. Here are some questions to ask when conducting technical analysis:
  1. Are there any trends in the stock’s price movement? For example, is it in an uptrend, a downtrend, or trading sideways?
  2. What are the key support and resistance levels for the stock? These are levels at which the stock has historically bounced off or broken through.
  3. Are there any chart patterns that indicate a potential price movement? For example, a head and shoulders pattern may indicate a reversal in a stock’s price trend.

Let’s look at an example:

  • Company: Amazon.com, Inc. (AMZN)
  • Chart Analysis: You might look at a chart of Amazon’s stock price over the past year and identify a trend of higher highs and higher lows. You might also notice that the stock has recently broken through a resistance level at around $100 USD per share (after the split last year), which could indicate potential for further price increases.
  • Technical Indicators: You might use technical indicators such as moving averages, relative strength index (RSI), and stochastic oscillators to confirm your analysis. For example, you might look at the 50-day moving average crossing above the 200-day moving average as a bullish signal.

News and Events:

Keeping up with news and events related to the company and its industry can provide valuable information about potential price movements. For example:

News: You might have read news reports about recent earnings reports, which beat expectations and showed strong growth in sales and profits. This news could potentially lead to an increase in stock price. And vice versa, rather negative connotations might suggest a contraction in the share price value.

Events: You might be aware of upcoming events such as a major product launch or a regulatory decision that could impact the company’s stock price.

Overall, it’s important to conduct thorough research and analysis before making any investment decisions. By considering these factors, you can make more informed decisions about which stock CFDs to trade.

* The information provided here has been prepared by Eightcap’s team of analysts. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and do not reflect the opinions of Eightcap.
In addition to the disclaimer on our website, the material on this page does not contain a record of our trading prices, or represent an offer or solicitation for a transaction in any financial instrument. Eightcap accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.
Please note that past performance is not a guarantee or prediction of future performance. This communication must not be reproduced or further distributed without prior permission.