USING CONTRACTS FOR DIFFERENCE (CFDS) TO HEDGE AGAINST PRICE RISK-AN APPLIED STUDY ON METATRADER 5 PLATFORM

Abstract

This study aimed to evaluate the financial and operational efficiency of Contracts for Difference (CFDs) and examine their capacity to operate as a hedging tool to mitigate price risks in Over-the-Counter (OTC) markets. The research problem manifests in the escalating intensity of global price volatility and the crucial need of investors for innovative mechanisms that limit losses and protect capital. To achieve these objectives, the researcher adopted a descriptive-analytical approach for the theoretical framework and an empirical approach driven by statistical and financial modeling within the international trading platform (MetaTrader 5) in the practical aspect. The purposive research sample comprised two financial instruments distributed across two major sectors: Forex (EURUSD), Stocks (Apple), spanning the period from April 1, 2023, to March 31, 2026. To ensure robust analysis of the time-series data and avoid spurious regression, an advanced software package via Microsoft Excel was deployed, utilizing the statistical Winsorization method to treat outliers, Dickey-Fuller stationarity tests, simple linear regression tools, and financial mathematical modeling represented by the Hedging Efficiency (HE) index. The study reached several key conclusions, most notably that using CFDs for hedging purposes neutralizes the risks of price volatility in spot positions symmetrically. The short selling option allows institutions and investors to build reverse positions that are exactly equal in size to their spot positions, thus absorbing the impact of sharp price fluctuations and covering immediate losses with equivalent profits realized from CFDs.