Contracts for Difference or simply CFD is a derivative that allows investors to predict the price movement of the underlying asset. It is traded directly with a broker and not in the market. CFD traders have a contract with their broker to buy or sell an asset in the future at a much higher price. Just like in spread betting, traders can adopt leveraged positions in CFD and also provide an alternative instrument for traders as to where they should use their index projects and market. You can find a variety of trading strategies that you can use to trade CFD.
Just like any other trading instruments that we have nowadays, the importance brought by CFD trading strategies is not easy to overstate since, without a definite plan, it will be extremely hard to get to the point of consistent wins and profits in CFD. When you trade, not just in CFD, without concrete strategy and plan, it is like playing golf with your eyes closed. You may hit the ball once or even twice, it is still more reasonable to get your eyes wide open and take into consideration the wider picture combined with a strategic plan.
Two Types of CFD Trading Strategies
Short Term Trading Strategies
There are different guises of trading strategies in CFD. Some strategies are particularly based on long-term investment while others prefer to go short. Some traders are focusing more on when the market takes its turn while others are trading within their boundaries or based on the performance of the previous price. But how can short-term trading help in generating enough gains in CFD?
Short term trading strategies in CFD tend to be more particular with hours rather than longer periods of time like days or weeks. All of this is because of the financial costs as well as the mechanism that helps traders get through with their expenses. In CFD, when positions are held overnight, financial costs can become a huge burden and will surely eat up your margin by incurring additional charges.
Long Term Trading Strategies
This type of trading strategy is not normally seen in CFD but we cannot say that this strategy is completely isolated. Traders who use a long-term trading strategy in CFD know that they should shoulder the additional costs but the possibility to strike a larger profit is very high. You may hope that the rise in the value of your open positions will be able to cover up the financial cost and eventually have healthy gains after some time.
Support and Resistance
Support and Resistance are responsible for providing traders defined trading parameters that enable good decision making. No matter if you are trading for company shares or commodities, the role of support and resistance helps in providing definite limits in CFD transactions. These support and resistance act as a trading indicator since markets behave unpredictably. With the use of such an indicator, you can make better plans and decisions in CFD trading.