A Review On CFD Asset Trading

11 months ago forexsimulation Comments Off on A Review On CFD Asset Trading

A CFD (Contract for Difference) is a widespread kind of traded derivative whose value stems from the movement of a fundamental asset. CFDs are a renowned gateway for investors to access financial markets and trade a variety of well-known assets.

In CFD trading, you can speculate the rising or falling prices of assets such as commodities, indices, metals such as gold or silver, and stocks. In CFD trading, at the time when the contract is closed, if the price is higher than the entry price, the trader will profit.

As a result, the seller has to pay the trader, and that will be the trader’s profit. Of course, the reverse also happens if the trade price is lower than the entry price. That said, let’s look at a couple of the assets that can be traded as CFDs.

1.   Gold

With gold CFD trading approaches, historical figures are key. The value of gold follows a robust yearly trend, and prices tend to assemble in January, February, August, September, November, and December. As a result, it’s advisable to buy gold CFDs during these months.

If the price of gold is trading at support in January, take a long position. If the price has rallied, be patient until it moves above the resistance level, and then you can take a long position.

After that, place stop-loss orders just under the final low swing. Then hold your position until the end of February or until you’re ready to draw your profit. Ensure you move the stop-loss up to the most current low each time.

2.   Indices

Popular among indices CFD trading approaches is momentum trading. This involves identifying a trend and hopping on it. Indices are perfect for this approach because they work best with liquid assets; those with a massive trading volume.

Momentum trading is quite similar to trading news, but the latter is a great way to indicate the start of a new trend for the former. When a major news broadcast is released, it can cause short-term instability and a longer-term trend that traders will identify and follow.

3.   Oil

CFD trading approaches for oil are many, but a relatively easy one is combining CCI (commodity channel index) and RSI (relative strength index) indicators.

The former aims to find cyclical trends, while the latter will help indicate when an asset is overbought or oversold. One tactic you can use is to wait until the RSI shows an overbought condition for an extended period; this indicates a bullish market.

The subsequent step is a bit counteractive and involves waiting for a reset whereby the RSI decreases and demonstrates an oversold condition. Then, to ascertain the bullish sentiment, ensure the CCI pointer remains above zero and then take a long position on the CFD.

As with all robust CFD trading approaches, you need to have protective measures in place, and in this instance its stop losses. Check the asset’s value at the last time it was indicated as oversold and place a stop loss there. You should leave the position at the end of the day or if the CCI goes below zero, thereby indicating a new cycle.

4.   Stocks

Almost any CFD trading approach can be applied to stocks. However, if you have a diversified portfolio, the hedging approach might benefit you the most.

Otherwise, the pair trading approach might be a good way to trade with less risk. Do note that the direction of movement isn’t significant.

Things to Note About CFD Asset Trading

Leverage Amplifies Profits and Losses

The leveraging outcome means that your respective profits or losses will be amplified if the markets move in your favor or against you.

You Trade On Margin

Assets that can be traded as CFDs are traded on margin.

This means that you pay a small percentage of the value of the fundamental asset to launch a position instead of paying the entire value of the fundamental asset. The percentage is usually between 10% and 20% as set by the supplier

Final Thought

To sum it all up, when trading assets as CFDs, you can buy in both rising and falling markets. In falling markets, you can sell the asset and buy it at a greater value. On the other hand, in rising markets, you can buy the asset when the value is low and sell it when the price increases.