Learning about CFD trading is one of the most effective strategies that you can have to avoid huge losses and entirely wipe out your account. Whether you want to venture hedging, day trading, and holding into long positions, you need to make sure that you know what you are doing. Fortunately, we have compiled four trading strategies that will genuinely give you positive results.
4 Trading Strategies in CFDs
We have here four kinds of trading CFD strategies that will surely help you in understanding the financial markets as well as the better side of contracts for difference. We also want to tackle the risks involved in every trade and how you can mitigate them and create a more suitable trading environment. Leverage is common in CFDs and these trading strategies make use of it. With leverage, you only need to deposit a portion of the full trade amount to gain the full value of the instrument. As appealing as it may be, leverage is high risk and could double your chances of losses as it doubles your profits.
Day Trading in CFD
If you want to venture into a short-term trading strategy in CFD, you need to know more about intraday trading. In day trading, you only need to trade throughout the day and close all your open positions at the end of the trading day. The intention here is to profit from small price movements in the market. However, day trading requires constant monitoring of the price movements. Day traders need to focus their attention on price action as well as technical analysis instead of the fundamental factors that could affect the financial instrument.
News Trading in CFD
Another short-term trading strategy that’s effective and convenient among new traders is news trading. In this type of strategy, you have to stay up to date with the latest economic news and other financial announcements which can affect the prices of your instruments in the market. If you are a news trader, you need to have good decision-making skills and the capability to make quick and accurate judgments based on the potential trading opportunities in front of you. This strategy is particularly great for volatile markets that could change from time to time.
Hedging in CFD
One great strategy to offset the risk in CFD trading that’s within your portfolio is the use of financial hedging. An example of a hedging strategy is the use of derivatives like forward contracts. There are also safe instruments to trade on like gold, government bonds, specific currencies, stocks, and other financial instruments that are considered to be less vulnerable against negative market shocks compared to others.
Position Trading in CFD
Position trading is somehow similar to the traditional approach of investment. You buy an asset and hold on to it until its price increases and you gain profit from that investment. This type of strategy is a long-term trading strategy because the positions span from months to years, as traders ignore small price movements and focus only on the long-term movements. Traders using position trading use fundamental analysis.