Introduction to CFD Trading

CFDs or Contratcs for Difference are a flexible method of trading on the price changes of products such as indices, shares, currencies, commodities and treasuries. Unlike buying shares, when CFDs are traded, one need not physically owe the product and does not have to pay its cost of ownership such as stamp duty or account management etc. This also indicates that you can sell and buy back the product at a later stage called as going short.

There are certain things to be kept in mind while trading CFDs. You must know that with all CFD providers tradable CFDs, margins and spreads may vary from time to time without bringing into notice with market maker. The commission given by market makers may vary or may be negotiable. There may be certain special offers running for exmaple, reduction in commission if you trade more than a specific number of times in a month. If you are trading with guaranteed stops they may not be present on every CFD that can be traded. So trading with a reliable CFD provider plays a very important role.

CFD trading has gained popularity among private players because of their flexibility as trading instruments. They allow trader to go long or short, protect existing positions and leverage their trades. In contrast to any other traditional share trading where one has to pay the full amount of share value through the broker to assure that you fulfill the conditions of the contract. The best way to understand CFD trading is to consider it as purchasing shares with a short term loan from your broker. You receive loan and pay interest on the taken amount on daily basis. But when the contract is terminated you have to pay the difference and reap the profits.

Advantages of CFD Trading

Allows you to trade on both rising as well as falling markets

CFD trading allows you to trade on the cost of a product both going up as well as falling down and try and reap benefits of both selling as well as buying opportunities. CFDs are used as a hedging tool by many investors to protect their current portfoilios from the risks of short term volatility.

Allows you to make use of your capital efficiently

One of the big advantages of Online CFDtrading is that it allows you to trade on margin which offers you leverage. This indicates that you do not have to put down the full value of a position while trading and since your money is not stuck up in one transaction, it can be used for further investments.

 

About Trading Lounge

Trading Lounge is an online trading, analysis and education provider that offers services such as Day Trading, Trading Strategies, Technical Analysis, and How to Trade advice by a reputable and experienced trading coach. TradingLounge.com.au was started by Peter Mathers in 1982 to meet the growing demand of accessible and sensible education in online trading.

Top Tips for Trading CFDs

CFD trading is based on common instinct underlying within everyone, the determination to succeed and to achieve something. This is a risky process as there are chances to gain profit as well as lose and therefore it is important to get a proper understanding of financial markets and a fair idea of trading.

Here are some Online CFDtrading tips for traders who want to place bet:

Start with small amount

Initially when you start off do not trade large amounts. There is plenty of time to establish yourself and chances of mistakes are high initially. While trading margin, losses can be more than your initial deposits. Trading comes with experience so remember to trade small amounts during the learning phase.

Avoid impulse trading

Many begginers will go through the chart, decide the lowest possible price and then place a bet going long inorder to buy because they asume that the price will go up. This is the most common mistake, the chart will always go down and the bet is actually placed against the trend without any indication that the trend is changing. You should always have a reason for your bets instead of trading on impulse as it could cost you a lot in the long run.

Decide the level to trade at

When you decide to trade CFDs or any other instrument, you should decide well in advance where you want to enter and exit a trade. Then be patient to wait for the price to achieve that level. Do not get tempted to buy or sell too early. Also choose two exit points – one where the trade has been in your favour and one where it has gone against you. Link these two levels with the help of a reward strategy.

Be aware of doubling up

Some traders start looking to double up when they come across a losing trade. This includes selling or buying more of the same instrument at a new lesser price, lowering down your average entry price. This strategy involves risk and might click once or twice but will generally result in more losses in the long run. Traders should only double up only when they have a very good reason to think that the trade will favour them.

Know when to exit out of a losing trade

Losing trades is inevitable, no matter how experienced trader you are. The tactic is to remain disciplined when you face a losing trade – you should cut losses immediately, instead of continuing in losses hoping that the trade will turn on your side. The mantra to successful trading is to keep those losses small when ever they occur and allow profits to run.

These are some of the CFD trading tips which can help you reap profits and minimize lossed while trading CFDs.

About Trading Lounge

Trading Lounge is an online trading, analysis and education provider that offers services such as Day Trading, Trading Strategies, Technical Analysis, and How to Trade advice by a reputable and experienced trading coach. TradingLounge.com.au was started by Peter Mathers in 1982 to meet the growing demand of accessible and sensible education in online trading.

Advantages of Long Term CFD Trading Strategy

Traders who want to play safe can adopt short term strategy so that they can protect capital and little profits slowly but definitely. However, there is another way for long term. Long term CFD strategies are considered as lesser form of leverage trading strategy and also tend to move with less volatile markets.

Although, this is not the case always. The things mentioned above will never stop any trader to go long term positions and take suitable strategies because there are some strategies that are particularly designed to meet the long term CFD needs. Furthermore, CFD trading strategy has its own advantage:

One of the advantages is that it can go along and experience larger movements in cost of a particular asset. This opportunity is not offered for traders having short term positions and adopting short term strategies.

Moreover, price movement in the short term or in the time frame of a single trading day is generally limited in a way that the prices are not likely to change drastically. While this can be taken as a protection for short term traders it also restricts the profits that can be collected.This applies even to the markets that are highly volatile. Unlike the level of prices or potential fluctuations in the market within a month's time, hike in the price can help a trader to earn a good amount of money.

Another benefit of adopting long term CFD trading strategy is that trading in this way will help trader to incur considerably lower transaction costs. This is a significant advantage that any investor will be considering in future. This could also be because of the fact that traders who are involved in trades with short lifespan have a tendency to incur more costs on broker fees and payments of commission as they do it more frequently than those trading in long term positions. Furthermore, though it is a fact that long term CFD strategies and systems exposes the trader to greater risks which can be eased with much lesser costs on each transaction.

About CFD Trading :

CFD Trading Strategies is one of the substitute of Trading Lounge,which is the online trading, analysis and education provider that offers services such as Day Trading, Trading Strategies, Technical Analysis, and How to Trade advice by a reputable and experienced trading coach. TradingLounge.com.au was started by Peter Mathers in 1982 to meet the growing demand of accessible and sensible education in online trading.

Some Popular CFD Trading Strategies

CFD trading has become very popular nowadays among the investors and traders. If you are one among them looking to trade CFDs then you must know some CFD trading strategies to increase your chances of success. With the help of these strategies and systems, you can improve your profits. Let us go through some of the common CFDtrading strategies:

Mean reversion systems

These CFD trading strategies work on the theory that shares and stocks that go down are likely to bounce up. You can test these mean reversion or dip buy systems on previous market data that you wish to trade this strategy with. Make a note of win loss ratios, profit loss ratios and the number of trades that the system sets off. Some times many stocks may be set off so be careful during big dips. Make sure that you note down the past draw downs. These systems are more inclined to higher win loss ratios which makes them preferable to trade with.

Swing trading

This strategy is based on avoiding choppy stocks that are out of trend and getting into those that are trending up followed by going short on down trending phases. Swing trading strategies is basically for shorter term trading. Here entries and exits are decided on the basis of chart patterns and indicators. This type of strategy is suitable to the trading styles where smaller moves are exploited.

Longer term buy and holds

These strategies are based on mechanical and fundamental triggers. They work in a longer time frame ranging from weeks to months to help stock give more room to breathe and experience larger movements. Some CFD trading strategies and systems are based on a strongly trending stock and work on a theory that this stosk may continue to rise. Long term positions have holding or interest cost but larger moves will have to compensate for these costs.

Thus we see that there are some Online CFD trading strategies that are used by the traders to exploit movements in the market. These systems play important role in deciding whether CFDs should be traded with or without leverage. So it is important to learn some good CFD strategies to ensure success.

About Trading Lounge

Trading Lounge is an online trading, analysis and education provider that offers services such as Day Trading, Trading Strategies, Technical Analysis, and How to Trade advice by a reputable and experienced trading coach. TradingLounge.com.au was started by Peter Mathers in 1982 to meet the growing demand of accessible and sensible education in online trading.