CFD, or contract for difference, is a popular type of trading. It is a form of derivatives trading where people speculate on the shifting prices of certain global financial markets. These can include currencies, shares, commodities, indices and treasuries. CFD trading strategies are similar to most share trading strategies.
However, there are a few differences. The main difference is that you only need a minimal amount of money up front to control your entire position. Another difference is that with CFD’s you need to be aware of overnight financing. This is particularly true when you’re holding positions for the long term. In comparison, with share trading you can hold a position as long as you want. You pay brokerage fees only when getting in or out.
If you are hoping to use your returns from CFD trading to raise capital for your business, this article about CFD trading strategies is written for you.
CFD Strategy for Going Short
Going short is the simplest CFD trading strategy. If you’re using this tactic, you sell high with the aim of buying back at a lower price. This is an ideal strategy for beginners or those looking to start making some profits. This strategy suits all time frames and can be implemented at any time. The length of the trade will be dependent on the strength of the trend. The only way to lose using this strategy is if your position reaches more than your entry price and you hit your stop loss.
Short-Term Trading of CFD’s
This strategy involves taking advantage of short-term movements within the market. These are movements that are made within a couple of days to several months. Because a CFD broker charges an overnight financing fee, CFD short-term trading strategies are popular. The aim is to identify short- to medium-term trends using moving averages to help work out the strength of the trend. You can use a higher moving average when the trend appears to be persistent.
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Going Long with CFD’s
Going long involves buying low and selling high. If you notice a strong uptrend, you will buy and ride the position for as long as it keeps moving in your favor. The length of the trend depends on its strength. This is another strategy that is suited to all time frames. Moreover, it is a simple strategy that is easy to follow. The only way to lose using this strategy is if your position goes lower than your entry price and you hit your stop loss.
Using News Trading as One of Your CFD Trading Strategies
News trading can be profitable with good returns. However, in order for it to be successful, you must have some experience in CFD trading. Therefore, this strategy is not for beginners. It requires plenty of research and closely following the news, with particular emphasis on the business news. Focus on major economic events and annual financial reports. That’s because these can affect the movement of stocks over a single day. By finding patterns, however, you can become a successful trader.
The Bottom Line
There are many CFD trading strategies. What’s more, some are more suited for beginners than others. Whatever strategy you choose, gain experience and develop your skills in trading CFD’s over time. This will help you to increase your returns and become more successful.