Currencies are managed on a minute-by-minute basis, stocks trade in blocks of several hours, and commodities change value daily with the supply and demand. There’s only one way to manage your money when it comes to these instruments: CFD trading.
What is CFD trading?
CFD stands for Contract for Difference. This means you don’t own any shares in the company or commodity – you merely have a contract stating how much money you will make if a price goes up (or down) by a certain amount. It works very similarly to an insurance contract, except it covers share prices instead of automobile accidents. And because all contracts are settled at the end of every day, there is far less risk involved than other forms of trading such as short selling.
When it comes to CFD trading, the world is your oyster. There are over 60 instruments traded on international exchanges all around the world. Some of these include shares in Apple, Exxon Mobil, Honda, and even Facebook. But if you want to play it smart, you can use several different CFD trading strategies to maximize your earnings.
Five best CFD strategies
Here are five best CFD strategies that every Singapore trader should know about:
Deep out-of-the-money contracts
You don’t always have to purchase a contract at the price that reflects an instrument’s current value; sometimes, it’s possible to wait until people realize their mistake and sell off their remaining stock for cheaper than the market price. This is called ‘deep out-of-the-money, and it’s a great strategy you can use with CFDs.
Hedge using CFD and futures contracts
If you’re worried about the value of your CFDs declining, then why not hedge them by buying the same contract on another exchange? You’ve already done all your research and know that this company has the potential to increase in value – but there’s no need to go overboard! Just purchase one contract on another exchange (this is called inter-market spreading) so that if one price goes down, the other will go up. It’s a simple trick which saves you from making extremely risky investments.
Limit my risk when trading CFDs
Now that you understand the basics of CFD trading, it’s time to minimize your risk. You can do this by setting a stop-loss order which will automatically sell off your contract if the value drops too low. For example, if you purchase one contract at $5 and the price drops to $4.50, then your smart stop-loss sells it off before you lose any more money. This works for both rising and falling markets.
Use limit orders instead of market orders
Limit orders are simply contracts that say, “sell me one share at no less than $15”. Many traders use market orders which immediately sell their stock as soon as an exchange picks them up. Limit orders guarantee that you’ll get a better price (higher or lower) and will save you money in the long run.
Stop-limit orders to maximise gains and minimize losses
Finally, if you want to play it safe, use a stop-limit order so that as soon as your contract hits a specific value, it automatically sells off at the limit price. This limits your risk if anything goes wrong – but don’t forget, it also means you won’t make as much money as if you had left things up to chance!
Make sure to follow these simple CFD trading strategies before signing any contracts on international exchanges. Many Singapore traders have already enjoyed great success using these tried and tested methods, but make sure to keep your finger on the market’s pulse. The only way to make money is to stay up-to-date with changing prices and trading techniques. New investors are advised to contact a reputable online broker from Saxo Bank Group and try out a demo account before investing their money.
Leave a Reply