The first step in trading CFDs is to decide which asset you’ll be trading. At global-Lex you can choose from , commodities, stocks and indices. If you aren’t sure which asset class to choose, why not take a look at our Education Center in the section entitled “.” As an alternative you could look at our or to see which assets might soon be moving. Each CFD type has its own specifications regarding the spread, available leverage, and margin requirements which can be seen on our . This information can help you plan your trade and trading costs.
After you’ve chosen the asset you’re going to trade the next thing to decide is your position in that asset. Basically you’re deciding if you want to go long (buy the CFD) or go short (sell the CFD) based on whether you believe the price of the asset is going to rise or fall. In order to make this decision you can use either fundamental or technical analysis methods. Finally you’ll decide on the size of your position. The unit value of the CFD being traded will depend on the asset, so you should attempt to calculate the optimal number of CFD units that will work best with your account balance and trading strategy.
CFD Trading Strategies
You can follow several kinds of when you are trading CFDs. Consider some of the following:
Day trading strategy
As you might have guessed from the name, day trading consists of opening and closing a trade on the same day. Day traders might hold a position for the whole session, or they might only hold a trade open for an hour. Day trading avoids the risks and costs of holding a CFD position open overnight.
Swing trading strategy
Swing trading is similar to day trading because it looks to profit from short term changes or “swings” in price. The main difference is that a swing trading strategy is more flexible, and traders will sometimes hold their positions overnight despite the added .
Scalping trading strategy
A scalping strategy goes in the other direction from day trading. That is, scalpers open many extremely short term positions, some lasting as little as seconds. The scalper attempts to make many small profits throughout the day by capitalizing on the prevailing trend or momentum in an asset.
Advantages of CFD trading
With CFDs traders are able to access much greater leverage than with traditional trading methods. The European Union has regulated the use of leverage and it is now limited to 30:1 for retail traders. However those who qualify as professional traders can get access to leverage that’s as great as 500:1. Remember that increased leverage has the potential to magnify both gains and losses.
Because Trade offers CFDs on all the major asset types a trader can get complete market access from one platform, saving them the headaches of managing multiple brokerage accounts.
There are some markets that prohibit shorting or have regulations the limit the ability of a trader to short the asset. Some require that the trader own or borrow the asset before they can short it, and some have different margin requirements for short positions. With a CFD a trader can short any asset offered at any time because the trader isn’t actually buying the underlying asset.
When trading CFDs you’ll be able to use all the same order types you’re used to from traditional trading, such as stops, limits, and contingent orders like One Cancels the Other. Unlike traditional brokers who often make money off commissions tied to different order types, only makes money from the spread. There are no commissions or trading fees of any kind. Spreads can be smaller or larger depending on market conditions, but they are the same spreads that professional traders have access to.
In some markets there are minimum capital requirements or limits on the number of trades that can be made in certain accounts for day traders. But CFD trading has none of these requirements or restrictions. Traders are able to day trade as little or as much as they like. The same is true for scalping.