Ever wondered how great it will be if you can speculate in the market and get a better return on your investments in the short run? In recent times, contract for difference or a CFD has gained a lot of popularity amongst the investors.
is a financial derivative which enables the investor to leverage their investment by entering into a contract with another person. With the help of a CFD, one can bet on the rise/fall in the market without even owning the underlying asset.
The underlying asset can be anything that a second party is ready to bet on. It can be shares, index, commodity, cryptocurrency or anything else.
The best of is that the trader has to invest only a portion of the notional value of the underlying asset, giving him leverage benefits. In this article, we will provide you with the best strategies to be successful in CFD trading.
Hedging your position
It is normal to bear the loss as an investor. No one can be profitable forever as everyone has to bear some amount of loss. The leverage might not work for you always, but it is essential to cut down on the losses by hedging your position. When you see the results are not in favour of your research work, go for a trade opposite compared to the first one.
For example, if you speculated a stock to rise in the near future but it turns out opposite; it is advised to go for a CFD trade where you bet on the stock price to fall. This way, you are locking in an amount of loss/profit.
Use the technical indicators which suits you
involves a lot of research work. In order to find out the best trade in the market, individuals involve themselves with several different indicators and overburden themselves. It is always better to stick to a selected number of indicators as you have experience and exposure, which will help to get a better understanding.
One should always pick up 4-5 indicators (whether it be MACD, Stochastic RSI or anything else), it is going to show good result in the long run.
Channelize your money
It all sounds good when the returns from trade are good. However, the market can be unpredictable, and things can go out of our hands. The Dot-Com Bubble burst of 2000, the financial crisis of 2008 and all other financial scams in the market where unpredictable and caused a huge loss to every retail investor.
Things like these can occur again, and one must be prepared for the same. By channelizing the money, one is not risking it all in one underlying asset; rather, the risk is being divested. For a long-term investor, it is always advisable to put a small percentage of the portfolio into safe heavens (like Gold and Govt. Bonds).
Go for Swing Trade instead of Day Trading
Investors panic at every other news in the market. This, in turn, brings a lot of unwanted movement in the price of the underlying asset. When a person opts for day trading, he might end up losing on the trade he made. However, when he goes for a swing trade, he has the momentum and time to let the market recover back to its position, therefore, letting his research work perform as expected.
A normal swing trade can last for 15-20 days giving the market enough time to recover from the foiled position.
Go for Paper Trading
If you’re a beginner and doesn’t have any exposure to the market, it is best to go for a paper trade. Paper Trading is a virtual market where the trader can learn buying and selling the CFDs. The best part is that the investor doesn’t have to risk real money.
This is a good way to start with investment in CFDs. Once you gain experience and exposure, you can invest real money in the market.
The airline industry is among the biggest user of financial derivatives. They effectively hedge the price of fuel to avoid extra cost due to the rise in price in future.
The market can always be unpredictable. However, with the right research and tactics, the probability of the trade working for us rises. require a lot of knowledge and experience. With the strategies mentioned above, one can surely cut down on the losses.