CFD trading involves speculating whether the price of an underlying asset viz. foreign currency, shares, commodities, and indices.
Usually, taking place between an investor and broker, CFD is a tradable instrument where the difference in the current and initial prices of the assets gets settled with cash.
This investment requires patients and deep analysis of the market and therefore traders require CFD trading tips strategies.
Here are a few strategies that CFD traders can follow to up their trading game.
- Going Short
With this strategy, traders capitalize when the price of an asset is high and buying it back when the price decreases. One of the advantages of this strategy is that it has no timeframe and traders can hold a position for as long as they want to.
A trader who goes short expects the price of the asset to fall in the future; incorrect speculation of which can bring loss to him/her.
- Going Long
Going short strategy lets traders buy when the price of the asset is low and sell when it becomes high. It is one of the great CFD trading strategies and tips and is practiced by most of the traders.
CFD comes with leverage so traders only have to invest a short amount of money to buy a large position. For example, a leverage of 1:100 will mean that a trader would only have to invest $1 to buy a position worth $100.
If the price of the asset goes up in the future, the trader makes a profit, but if it goes down, the trader makes a loss.
- Short Term
One of the CFD trading tips strategies where investors take advantage of trades lasting for hours or even minutes. Usually done with Forex, this trade identifies short price movements in the market and makes off of it.
One advantage of this strategy is that losses are limited however profits are also small. However, small profits accumulated over time can turn into larger ones.
- Long Term
Generally done with commodities like Gold, Oil, Cocoa, Cotton, Copper, and other ones, the goal of this strategy is to hold the position for as long as one can.
Usually, lasting for months, this strategy comes with more substantial profits; however, risks are also substantial and can attract equally larger losses.
- Day Trading
Another CFD trading strategies and tips, this one starts and ends on the same trading day and thus closely resemble short-term trading.
Usually popular with energy commodities like Oil, Coal, Gasoline, Electricity, Palladium, and Ethanol, this strategy highly depends on global economies; controlling the flow of these energies. Thus, traders need to keep in check the demand and supply of these items before investing.
Traders beginning their careers can study these CFD trading tips strategies to get a grip on what this market offers. Additionally, they also need to check whether CFD is available in their country.
However, before investing it is advisable for traders to keep in mind the liquidation, counterparty, and market risks that come with CFD.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.