Cfd Trading, 3 Popular Trading Strategies

By Author: Ben Finance
Total Articles: 3
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Introduction
This post covers 3 of the most common strategies traders can apply when trading CFDs. First of all, let me try and explain what CFD trading implies. A CFD, which stands for Contracts For Difference, is an agreement between two parties, a buyer & a seller, to exchange the difference in value of a financial instrument, referring to a share, currency or commodity, within the time the contract is opened and the time it is closed.

Important things to remember
Before I mention the strategies applied commonly by traders, here are some important points I thought a trader should remember and acknowledge when trading CFDs.
It is hard to exaggerate on the importance of establishing and/or developing a CFD trading strategy
A logical plan of action is needed to increase the chances of winning when trading CFDs.
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... A CFD trader without a strategy is similar to playing golf blindfolded – it is possible to hit the ball once or twice; however it will be more profitable to open your eyes and visualise the wider picture with a strategic approach to your CFD trading.

Type of Strategy
Making the decision on which CFD strategy to adopt requires a trader to balance certain factors inclusive of:
Appetite for risk
Trading objectives
The impact of leverage on a position
Available capital

It is also important to develop a strategy that works for you as it is the first step towards becoming a more consistent CFD trader.

Go Long
Going long is a strategy that requires investing on a market, indices or securities based on their long-term potential. By this I mean that the position is held in anticipation that the value of the contract will increase, rather than the need to hold the contract open for any length of time.

Go Short
Going short is somewhat the opposite an opposite approach to going long, as it requires selling contracts to buy them back when the price falls, allowing the trader to profit from the difference in prices. This is an effective method of trading; it requires the trader to pay attention to factors which could potentially affect an industry or a company negatively..

Pair Trading
Pair trading is recognised as one of the most popular strategies amongst larger investors. It is often referred to or used as a hedging strategy to protect against losses. It involves trading on instruments which are historically related, by buying into one and simultaneously selling another, as one rises and the other falls in tandem. This helps offset the risk of any adverse price movements.

Although there are several CFD strategies, these three were only mentioned to illustrate the importance in developing a strategy by demonstrate the different approach to trading CFD. It is important to use and develop a strategy, which you are comfortable with as it breeds consistency, maximizing winnings and minimizing risk of losses.

If you are planning on trading in CFDs, I would suggest researching further on different strategic approaches. It is important to establish one that works best for you.