CFD Trading Strategies – A Brief Yet Informative Guide
As a beginner, you might be overwhelmed by CFD trading and its meaning. CFD stands for “contracts for difference,” and you can make money whilst trading using CFD trading strategies. We compiled a brief guide of CFD trading tips and techniques that you could find useful, as you progress as a trader. In short, the CFD trading method is unique because you can make a profit depending on price movement without owning an asset.
A Definition of CFD
Two sides must be included in a CFD contract, where they agree to pay the price of difference between the opening and closing price of a chosen asset on the market. It’s a way of speculation, and profit or loss are made when the underlying asset changes its position of the opening price. Even if you are trading with a broker, and you chose a CFD strategy, you are speculating whether the price will go up or down. Thus, you do not have to own the asset that is trading. Popular options that include CFD trading strategies include trading with Bitcoin, oil and Forex.
CFDs and its Benefits
We mentioned the most popular CFD trading options. Still, the beauty of it is that whatever you find interesting, you can probably use a CFD way of trading; whether it’s crypto or a commodity. Cost, of course, is the most attractive thing since not owning an asset means minimal costs. Fees are also really low because brokers mostly make money off of CFD contracts when you pay the spread. Not owning an asset means you don’t have to borrow anything or shorten costs, so there are fewer rules and accessibility is high.
As Forex, CFD trading also operates 24 hours a day. CFD day trading requirements are very minimal, while the leverage is a lot higher than if you were trading the traditional way. Have in mind that low margin rates can get you to big positions. But if you lose, you lose a lot, so do proper research before diving into it.
What many people miss to mention is the fact that CFDs can last virtually forever, meaning you can wait for a long time until you take a position. This is ideal for CFD traders who like to trade patiently and observe the right circumstances on the market.
CFDs Disadvantages
There aren’t many CFD trading strategies disadvantages, but it’s good to mention them. When considering CFD trading, you should pay attention when you are selecting a broker. It is important to ensure they’re regulated, since the CFD industry itself isn’t entirely. Also, leverage can be a disadvantage, no matter how advantageous it can be. We mentioned above that the margin could double your wins, but double your losses as well. It’s up to you and if you are ready for this type of risk. Be aware of what you are getting yourself into, and if you are willing to abide by the CFD trading strategies rules.
Another disadvantage is that the trader needs enough money to support the trade. This doesn’t mean you should invest, because the main rule that everyone loves about CFD trading is that you don’t need much money. But if the position moves against you, you will have to be ready to stay in and gain more money, or get out.
CFD Trading Strategies
There are two popular CFD trading strategies, the first one being:
Breakout Strategy: Where you need to identify a key price level for security that is given. This means that once the price hits your key, you need to buy or sell, depending on the current trend. If you are not really sure what to do, you don’t have to do it right away. As we said, you can wait when the time is right/when you are sure about your CFD trading strategy and its success percentage. Without any clear signals, it would be best to avoid trades. Until then, learn and observe different charts and patterns. So, you can figure out something better that you may have missed.
Contrarian CFD Trading Strategy: Relies heavily on timing. You know that trends don’t last long, so you need to identify or rather speculate where you believe the point is near the end of the trend. Next step in this type of CFD trading is entering a buy position, and you hope and speculate that the trend will take another direction.
Other strategies do exist, but these two have been proven to be the most successful, regarding CFD trading.
In Conclusion
CFD trading can be a very profitable way of earning profit. It ultimately depends on your trader personality type and how much of a good observer you are. If you are completely new to the market, we would advise you to talk to your broker about your trading goals, and if this could be something for you. If you are eager to try it out, but you don’t have enough experience, it’s better to wait it out a bit. First, get used to the market, and ensure you’re reading charts and analysis with ease. Then, you can dive into CFD trading strategy and see what it has to offer. Good luck!
