Dear readers, today I, trader Anna, want to talk about CFD trading strategies. I must say that they have a lot in common with Forex trading. Brokerage companies, working with contracts for the difference in prices, often offer a significant part of the orders used in the Forex market. These are limits, stop-orders and various restrictions, for example, "if it is fulfilled". Guaranteed market stop orders are also often offered.
Types and features of CFD trading strategies
Almost all trading strategies used in CFDs are used in the currency and stock markets. However, they have features that allow the trader to realize the potential and improve the level of profitability. Thanks to the provision of large leverage by broker companies, traders have the opportunity to try several strategies. A lot of time is not required for this, and you can increase your trading profit pretty quickly.
This is of great interest to forex traders and stock investors. They are increasingly interested in CFD contracts, which allow you to optimize risks and use a regular strategy.
First of all, a market participant should decide whether the trade is more interesting for him: short-term or long-term. Let's see what the difference is:
• Long-term strategy in CFD trading. Many people prefer it for the reason that it is easier to make accurate forecasts. Typically, the term of a long-term transaction is from 30 days to a year.
• Short-term trading (also called intraday) brings the trader profit from changes in value, which occur from minute to minute or from hour to hour. That is, the price should change in a short period of time.
Short-term trade also has advantages. The costs are usually lower than for long-term financing. Traders who work in this market can use almost all the usual CFD trading strategies.
Advantages and disadvantages of trading Swing
This is another popular variant of trading contracts for the difference. It allows the trader to get income from the so-called "swing", or small turns. For example, in bull markets, prices can both fall to the lowest level, and quickly recover.
Since the recovery is almost inevitable, during the periods of kickbacks, that is, reducing the value, it's time to buy assets. As for the bear markets, they can approach to start short-term trading.
So, any trading style, swing-trading has its advantages and disadvantages. Plus this strategy is to simplify the identification of the transaction. In addition, it is easier for a trader to make forecasts about price changes. If he correctly approaches the analysis of the market, he can profit regardless of in which direction he develops. So the potential of this method of trade is significant.
The downside is that it is not easy to determine the reversal point. This is the time when fluctuations in the market end. For beginners, the method is not very suitable, since you need at least a minimal trading experience. The participant needs to be able to determine in which phase the market is located, in which direction the price will move, and so on.
What is hedging?
But most of all for CFD contracts, a strategy such as hedging is appropriate. This method is used to establish a balance sheet of assets and prevent losses. Traders apply it to protect against unpredictable, including extreme, price fluctuations.
Hedging can be achieved in many ways. For example, traders can buy and sell a financial instrument in different markets. This makes it possible to profit from arbitrage. Another option is to take different positions in correlated markets.
Most often, this strategy is used if prices are above the average. Also, it works well when investing in financial instruments with wide trading ranges. This can be a currency or a commodity with a low degree of liquidity.
In addition, hedging can be applied when your CFD contract brings the desired profit and you want to receive it without closing the position. In its essence, this is a strategy with a low level of risk. In the future, it is designed to completely eliminate it.