CFD trading strategies are mostly similar to the traditional financial trading strategies but there are some additional advantages offering higher level of profitability to the CFD traders. CFD trading provides leveraging through which making gains in shorter terms is possible and the ability to go short helps in opening extra opportunities for those trading in CFDs. At the basic level of trading CFDs, investors can use strategies like long term vs short, short term vs long, trend vs swing, hedging vs speculation. Let us go over these CFD trading strategies you can use at XFR Financial Ltd in detail.
Long vs short position in CFD trading
Purchasing an asset is termed as taking a long position and it requires an expectation that the value of an asset will increase over the life of the CFD. Short position means selling an asset at a certain level and his intention is buying back after a certain time. He assumes that the price will go down over the period of contract. If the assumption is incorrect the trader will face losses which will be the difference in opening and closing.
Short term vs long term trading
This refers to the timeframe in which the trading is done. Short term refers to the trading with respect to price changes hour to hour or minute to minute. It allows traders to make profits in shorter term and is also referred as intra-day trading. A long term CFD trading helps you in taking the advantage of the long moves of the prices in the market. If the trader at XFR Financial Ltd has a higher level of forecasting ability, he can gain the advantage from long term trading.
It refers to making an attempt to get benefited from small reversals i.e. swings in larger trends. In bullish markets when the prices experience consolidation and falls below previous highs, the swing strategy can be applied. Similarly in bearish market the opposite takes place.
Hedging at XFR Financial Ltd
Counter to all these CFD strategies at XFR Financial Ltd is the strategy of hedging which is basically a protective strategy. When hedging the trader is already in open positions and he tries to protect these positions through the process of hedging. He does not want to lose the value of their positions and that is why he takes an opposing position which is inversely related to the other position. This strategy helps in hedging your losses since one will make gain while the other will make profit and balance the overall position.
One main advantage is that your total position is protected and there is no possibility for new losses. But the drawback is that you will not be able to make further gains and no possibility of more rewards. This strategy is typically implemented when there is a big volatility in the market and the price becomes unpredictable, The traders want to eliminate the further losses through hedging in this case.