CFD trading strategies

Whether you’re a seasoned investor, casual trader or absolute beginner, this refresher on CFD trading strategies will help you refine your approach and explore the latest CFD trading tips.

Before you start trading, you’ll want to know what Contracts for Difference (CFDs) are and how they work, so you can leverage the instrument in your trades. In this short guide, you’ll find out about CFD trading and how different CFD trading strategies can be used to maximise your profits and meet your revenue goals.

Read on for an overview on:

• What are CFDs?
• How does CFD trading work?
• Top CFD trading strategies
• CFD trading tips to get started
• CFD strategies for beginners

What are CFDs

CFDs are a derivative trading instrument which allow investors to attempt to build a profit by speculating on the performance of a range of underlying assets.

So, how does CFD trading work? Well, traders take a speculative position on the shift in value of global market assets, such as commodities, forex, shares, and indices. The CFD broker offers traders the ability to take a position on a financial product by agreeing to pay the financial difference between the time the contract opens and the time it is closed.

What’s unique about CFD trading is that investors aren’t buying the underlying asset, only gaining (or losing) funds, because of the price fluctuation of the asset itself in the global marketplace. This means the material value of the asset isn’t of great consideration to the trader. Instead, they are only interested in predicting future financial behaviours between entry and exit.

There are some significant pros and cons for trading CFDs. A key benefit is that ease of execution and that there is no hands-on requirements for asset ownership. On the other side of the coin, while popularity of CFD trading has spiked massively in recent years, industry regulation has still to catch up.

Popular CFD trading strategies

CFD trading utilises leverage, giving investors access to higher value trades using small margin deposits. Margin trading means that your own working capital or cashflow doesn’t limit your ability to open larger positions, providing the ability to access larger profits and leverage movements in the market for capital gain. Using leverage isn’t without risk. Make sure you carry out risk and reward ratio analysis to understand if you’re comfortable with your risk exposure and take independent financial advice where required.

There are lots of different CFD trading strategies which can be used to help maximise your revenue gains. Here, we’ll review a few of the most popular to consider. As with all information, be sure that any CFD strategies you make use of suit your personal circumstances and investment goals.

News trading

News trading relies on making investment decisions based on market news and announcements across the global marketplace. News traders can utilise lots of different strategies, however the fundamentals of their approach is analysing past market behaviours as well as understanding the psychology driving those behaviours. Data and insights in the form of historical earning reports for example help news traders predict future market trends and movements.

As expected, news trading is a dynamic CFD strategy that relies on close market watching for sudden pricing changes to local and global economies. It also capitalises on scheduled announcements to profit from short-term fluctuations that die down once announcements filter through the news cycle. In news trading, depth and length of exposure to the markets is a great driver of success.

With unexpected global changes hit, news traders often best placed to capitalise on sudden market movements to drive profits, thanks to their deep market analysis and familiarity with global economic financial calendars. CFD scalping works hand in hand with news trading, allowing investors to turn a quick profit on incremental price changes in seconds and minutes.

CFD trading tips

There’s a lot of CFD trading tips we can offer, but one of the most importantly contingencies you can do when trading it’s to make use the stop-loss order. These automations allow you to limit your loss on a position should the market change.

Another tactic is to ensure that you’re on top of the insight, analysis and knowledge that suits your personal circumstances and experience. There’s a wealth of digital information but make sure you’re reading credible resources.

Finally, make sure that if you’re using leverage, and that your risk and reward ratio is balanced.

CFD Trading tips for beginners

One of the best CFD trading tips for beginners we can offer is make use of a demo account before you spend your own cold hard cash. This allows you to test your theoretical strategies and make sure they work in practice. Ensure you test your CFD trading strategies using the sort of budget that you would be using in real life trades. This will allow you to understand how your capital can be leveraged best to maximise real, meaningful returns.

Lastly, make sure you trade with a regulated CFD broker who offer a range of financial instruments, provide advanced technology trading platforms, education, and competitive pricing.