CFD trading with all its opportunities and advantages firmly attracts more and more traders worldwide. The rookie traders with less experience of financial market activities often ask how to make money on CFDs? To answer this question properly is necessary to define what CFD is, first. The abbreviation CFD indicates contract for difference meaning the difference between starting and closing price of the underlying asset. The CFD trade also owns one unique feature – reflecting the rollercoaster price movements it never owns the asset itself. In general, this is an agreement between trader and broker regarding price ups and downs of a particular asset.
How to make money on CFDs
The one indisputable benefit of CFD trading is getting profit from different market processes, both raising and falling the price. The experienced investors with deep knowledge of market and finances, also feeling the situation are able to catch the profit from opening buy/sell positions in right moment proving the ability to win from price moving in different directions. Using different charts and analytic data can be very helpful, as well as following one of the existing trading strategies.
- Risk management strategy. The main objective is to minimize possible risks in short-term perspective.
- Equity market-neutral strategy. Uses movements of the price on stocks belonging to the same sector.
- Arbitrage strategy. The essence of this strategy is buying and selling before dividends are shared.
- Speculative strategies. Set of strategies using different market conditions and price variations:
- long CFD – buying low and selling high;
- short CFD – selling high and buying low;
- swing trading – using market swings;
- news trading – using political and trading news and releases;
- zone trading – trade support and resistance levels.
Understanding how to make money on CFDs and receiving the necessary trading experience the investor can develop his own trading strategy best suitable for his needs and demands. Also, to be able to undertake appropriate market sell/buy operations in right time and minimize possible investing risks there is a good idea for the trader to improve his financial and market knowledge, as well as being aware of the latest news and events for the industry. Online guidelines, different training materials, courses, e-books and online lessons can be a good assistant to get a better understanding of the market conditions and processes.