Contracts for difference (CFDs) is a form of derivatives trading that allows investors to trade based on prices acquired from an underlying market instead of the market itself. Pharmaceutical stocks CFDs trading has in recent months, for obvious reasons, become especially popular.
In today’s unprecedented times, trading volumes for pharmaceutical stocks have seen an increase because companies in these industries are on the frontline of finding a solution for the highly infectious virus COVID-19. A firm that can produce a viable cure for the virus will immediately see a surge in its stock price, and several companies have already benefited from that.
How have the stocks been performing?
With vaccines now being rolled out, several top pharmaceutical companies have seen significant improvements in their share price. Over the past six months, Pfizer’s (PFE) stock rose from $34.27 after the company confirmed that it had been seeing significant results in trials for its coronavirus vaccine. The stock hit a high of $42.56 on December 8, but it has been trading at yearly lows entering 2021.
Primarily, Pfizer’s dwindling performance came from the company’s Q4 2020 reports in February. With the pharmaceutical giant reporting earnings of $11.7 billion, beating analysts’ estimates. However, GAAP earnings of $0.10 per share lagged. Problems with vaccine rollouts have also hit the stock hard.
One company that seems to be doing well, however, is Moderna (MRNA). Over the past six months, its stock price has jumped from $54.34, hitting a high of $185.98 on February 8. While the price has dropped significantly since then, it is still holding strong at $132.19 at the time of writing this report.
All in all, pharma stocks have been putting up some impressive numbers of late. So, why will you want to trade CFDs based on these stocks?
A CFD trade is an agreement to exchange the difference between the opening and closing price of your asset. Thanks to this structure, these instruments offer more flexibility than some other investment solutions.
Access to leverage
When investing in these stocks via CFD contracts, one can amplify the volume being traded using leverage. This means leverage lets you trade with more than the deposit you have put in your trading account. That deposit is known as margin.
When you put down the margin and set a leverage level, you can trade with more money than you have got. From there, any profits and losses you make will be based on your leverage - not your margin. Essentially, CFDs provide an opportunity for you to increase your profits however it also works the other way around and losses will also be amplified.
Optimal trade flexibility
A CFD trade is an agreement to exchange the difference between the opening and closing price of your asset. Thanks to this structure, these instruments offer more flexibility than some other investment solutions. You can trade in pharmaceutical sectors that are showing a downward trend in price, as well as those looking up.
When you trade CFDs, you see the opening and closing price of your position. You can trade at the buy price if you think the pharma stocks will jump, and you can select the price at which you would like to sell at if you think they will slump. With the industry currently receiving a lot of attention, CFDs provide an opportunity for you to trade on market news announcements with a certain level of flexibility.
Effective share portfolio hedging
So, imagine you own several shares of MRNA, and you are looking to keep those shares for a long period of time. But now let’s say a new vaccine has been discovered by a new pharmaceutical company. You may believe that certain stocks linked to the industry will drop in value, and thus you look to offset potential losses on your MRNS stock. With CFDs, you could open a short position and do just that.
If you turn out to be right and MRNA - or the entire pharma industry - slumps, you will make a profit on your CFD short position. If the shares increase in value, you can quickly close your short position and offset the losses you incur in the future.
As you can see there are many advantages to trading pharmaceutical stocks and it’s an exciting time to get involved in these fast-moving asset classes. At FXPRIMUS we offer direct market access to these stocks via demo (practice) and live trading accounts. We also provide a range of educational material in English and Arabic to help you get started.
To learn more visit www.fxprimus.com
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