There are several strategies used in CFDs that play a significant role in the success of many traders all over the world. CFD is a derivative that is being traded directly with the broker rather than the financial market. Just like in spread betting, the traders will have to adapt to high leveraged positions where traders can adopt an alternative instrument to base their index projects and market projects.
Without a properly defined plan in CFD, it is very difficult to get to the point of consistent profit delivery. This is true not just in CFD but in almost all trading types. Without a plan or strategy, you are like playing basketball with a blindfold. You may hit the ring once or even twice, the chances of gaining more points are higher with eyes without cover.
Two Types of CFD Trading Strategies
Choosing the type of trading strategy for CFD lets you enjoy its best effect in all your trades. The two types of trading strategies used in CFD are Short Term and Long Term trading strategies.
Short Term Trading Strategy
There are different guises of CFD trading strategies. There are some that are mainly built on trades that go long and there are others that have weak points that should be sold short. There are also points that mainly focus on the turning point of the financial market.
Although both long and short trading strategies are popular, most CFD traders tend to go short to escape from the costs of long-term leverage. But how do short-term strategies help in generating profits? How should you compare it with a long-term trading strategy?
Short-term strategies in CFD trading are dealing with hours in trading and not days like long-term trading strategies. These short-term traders tend to benefit from not paying any financing costs and other mechanisms that could give additional costs to traders.
Long Term Trading Strategy
Another convenient trading strategy used in CFD trading aside from the short term is its contrast, the long-term trading strategy. Traders using this strategy tend to leave their positions open for a day or two to preserve not very high leveraged styles. They also tend to deal with less volatile markets.
The main advantage of a long-term trading strategy is that traders tend to acquire the ability to take advantage of larger price movements, something that isn’t available for short-term strategy. Drastic price movements are also not felt in a course of one day even in the presence of the most volatile markets. More importantly, the transaction cost of a long-term trading strategy is much lower than those who are using day trading or shorter strategies to deal with CFD.
Since short-term traders do multiple short-term trades every day, they are incurring more broker fees and commissions compared to long-term traders. Although these transactions appear in small sizes, if you add it all, you will see how huge it affects your trading funds. Although not a norm in CFDs, long-term trading strategy is worth checking out.