11 ways CFDs might enhance your Japanese investment strategy

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A contract for difference (CFD) is an agreement between two parties to exchange the difference in the value of a financial instrument over a specified period. CFDs are derivatives, which means their value is derived from an underlying asset. In the case of a CFD trade, the underlying asset is usually a stock, currency, commodity, or index.

You can trade CFDs with most brokers. Check out Saxo Bank CFD for more information on the types of products you can trade in Japan, or read more to find out how they may just be the ideal product to enhance your investment strategy.

Gain exposure to the Japanese stock market

The Japanese stock market is the third largest in the world, behind only the US and China. It’s also highly volatile, which can present opportunities for savvy investors.

With CFDs, you can take a position in the future direction of the Japanese stock market without owning any shares, meaning you can speculate on whether you think the market will go up or down without paying the share trade’s total value.

Take advantage of leverage

When trading CFDs, you can also use leverage to maximize your opportunities in the markets. Leverage is fundamentally a loan that your broker provides, allowing you to trade with more money than you have in your account. For example, if you have a ¥10,000 account and use 100:1 leverage, you can trade with ¥1 million.

While leverage can magnify your profits, it also magnifies your losses. So, stopping-loss orders (discussed below) are essential to limit your downside risk.

Use stop-loss orders to limit your risk

A stop-loss order is when you sell a security at a specific price. This type of order limits losses in case the market moves against you. For example, if you buy a stock at ¥100 and place a stop-loss order at ¥95, your position will be sold automatically if the price falls to ¥95.

Stop-loss orders are fundamental when trading CFDs because of the high leverage involved. Without a stop-loss order, a small move in the market could cause your losses to spiral out of control quickly.

Utilize price movements in both directions

You can profit from price movements in both directions when you trade CFDs because you’re not buying or selling the underlying asset—you’re simply speculating its future price.

Whether the market goes up or down, you have the potential to find opportunities, considering your predictions are correct. This contrasts with traditional investing, where you can only find opportunities in bull markets.

Trade CFDs on a wide range of assets

You can trade CFDs on stocks, indices, currencies, commodities, etc., giving you plenty of flexibility in constructing your investment portfolio.

Start trading with a small account size

You don’t need a large amount of money to start trading CFDs. Many brokers will allow you to open an account with just ¥500, which is much lower than the minimum investment required for traditional investing, which can be several thousand dollars.

Access the market 24 hours a day

You can access the market 24 hours a day, five days a week, allowing you to trade around your schedule and take advantage of opportunities.

Use a demo account to practice trading

Most brokers will offer you a free demo account, so you can try CFD trading with virtual money and see if it is for you. It is an excellent way to familiarize yourself with the market and develop your strategy without risking any real money.

Consider using an automated trading system

You could use an automated trading system if you don’t have the time to trade manually. These systems place trades on your behalf according to pre-determined criteria. Automated trading systems include Expert Advisors on MT4 and MT5, where you will get the chance to backtest your strategies and set up your own signals.

This can give you a chance to practice trading in another way and strengthen your overall trading skills.

Use technical analysis to make informed decisions

Finally, traders can use technical analysis to study past price data to identify trends and predict future market movements. Many traders use technical analysis when making decisions about their CFD trades, and it can also be another areain which to hone your technique.

The bottom line

CFD trading is a good way for traders to enhance their strategy, as they offer a new avenue of investing. With the opportunity to benefit from both bull and bear markets, it has also become a popular way to trade. To learn more about CFD trading, there is a wealth of resources online from guides to webinars and online courses. The best traders are informed, and you should always make sure you understand what you are doing before placing a trade.