A Brief Look on CFD Trading Strategies

CFD trading stands for Contract for Difference and unlike normal trading gives an added advantage of leverage and instant access to over 10000 markets. CFD trading comprises of an agreement between two parties which binds them to exchange the difference between the opening and closing price of a contract. They are derivative products that lets you trade in live market price movements without owning the instrument underlying your contract basis. CFD allows you to analyze future movement of market price irrespective of the market rise or fall. CFD also lets you cash in while the prices fall so that you can maximize your profit. The number of markets available for CFD enables you to have more exposure.

There are several unique features to CFD trading making that makes it stand out from traditional trading. It gives the option to go long (buy) when the market is on the rise and to short (sell) when the market is expected to go on the downward slide. Thus CFD is a flexible alternative to trading according the fluctuations of the market as opposed to fixed trading and hence gives an opportunity to profit from both market rise and fall. CFD Trade lets you offset your losses as it can be very tax efficient and depending on the circumstances you can use losses to offset against Capital Gains Tax (CGT).

CFD recognizes the need for people to have 24 hour access to their trading accounts and grants it irrespective of where you are especially when the market prices are volatile. Thus one can always access their CFD trading account 24/7. It lets you trade in CFD even if underlying markets are closed. It has the feature of high leverage as it is traded on leverage. It means you pay only a small fraction of the total value of trade to open position which is called margin. However one needs to be careful as losses are magnified the same way as the profits are. CFD is stamp duty free enabling 0.5% saving on each transaction.

CFD trading strategies are designed to ensure consistent profit while trading in the financial market. One can formulate a successful trading strategy by having a simple and pragmatic approach. One strategy is to consider day trading with CFD. Due to its high level of liquidity CFD works particularly well for short time periods. It involves buying a large quantity of stocks where you incur charges only if you hold it overnight. Day trading allows you to close the position by end of the trading day without paying anything extra.
Money management strategy for CFD is useful for all traders. It determines the amount of capital for CFD trading and designates how much money to risk with each trade. A 2% risk is a good start and can be adjusted depending on market volatility. A trailing stop loss strategy is another very good CFD strategy. It essentially means that when you buy a stock expecting a certain profit you also deploy a trailing loss which indicates you have to sell regardless of the profit you can get if the price drops below a certain point. It lets you set a stop loss amount to check your losses. Thus CFD trading is a good alternative to normal trading.