CFDs are relatively new financial products that, over the last decade, have become popular among investors. When selling CFDs, the underlying asset is not held by you, you just pay or receive the difference between the opening price and the closing price. Here are the Three Best Beginner CFD Trading Strategies.
We will first start with the definition of the concept. What exactly is a CFD?
A CFD is defined by Investopedia as a “tradable agreement between a customer and a broker who trades the difference in the current value of a share, currency, product or index and its value at the end of the contract”.
CFDs are relatively new financial instruments that in the last decade have been increasingly appreciated by investors. You do not own the underlying asset when trading CFDs; you simply pay or receive the difference between the opening price and the closing price of the underlying asset.
Now you can start! What are the Best 3 Trading Strategies for CFDs?
Most of the time, you use an intraday, scalping or day-trading approach when you use CFDs. This way, in order to keep your trading positions open overnight, you do not have to pay any fees. In order to track the markets and try to outperform them, these strategies take a lot of time, effort and concentration. Intraday and day trading strategies mean that, during the same trading session, you can open and close a spot.
“Scalping” is one of the techniques that fits well with CFDs. Scalping is suitable for trading the news, thanks to the greater versatility and low transaction costs of CFDs. With this method, within a few minutes or even seconds, you can take advantage of small and fast profits.
It’s important that you follow a detailed economic and financial calendar to be effective with news trading, so you will be aware of future events or statistics that could impact the underlying asset you are trading. The most famous calendars among traders are those on Forex Factory or EuropeFX Review blog.
2.The Pair trading
Pair trading is part of market-neutral methods and is usually used on stocks with CFDs.
You can use it, however, with 2 ETFs, currencies , commodities, etc. The primary benefit is that, with high or low market volatility, pair trading can be used. The course of the business is also not really essential to this strategy.
This method works when you invest in 2 separate CFDs with one long position and one short position belonging to the same sector. An integral principle of this strategy is correlation. A measure of the connection / relationship between 2 assets is the correlation.
You use 2 typically highly correlated assets in this method, which have begun to become less and less correlated. “Any adjustment in the correlation of 2 correlated assets should indicate a return to” the mean trend of the pair. This is precisely how this approach helps you to make money.
3.Method of Hedging
Often, hedging is compared to insurance. For example, if you have a car insurance policy against injuries, even if your car does anything wrong, the negative effects will not be minimized. Hedging is also used in finance to reduce or entirely negate risks from other investment vehicles. To protect their portfolios, hedge funds, major banks, and many other investment firms all use hedging.
Remember, It ‘s important to work first on determining your trading profile when building your trading strategy. Think about your financial awareness, your trading capital, your time horizon, your aversion to risk, your financial goals, etc. You will be able to fine-tune your trading decision process after you’ve answered all of these questions. You will be able to build a trading strategy to execute based on that.
Complex products that may not be acceptable for every investor are CFDs. Using leverage with CFDs also means that more than the initial trading resources may be lost. It doesn’t mean, however, that learning that is profitable with CFDs is impossible. For CFDs, there are many approaches that you can use, such as MACD, RSI, Moving Averages, Trend lines, etc.