What CFD Trading Strategies Are Best To Be Consistently Profitable In The Markets?
Trading coaches everywhere are often asked the question 'What CFD day trading strategies are the best to be
consistenly profitable in the markets.
I will endeavour to outline the Top 5 reasons why day traders have a preference for Contracts for
Difference over the more complicated derivatives like futures and options.
1. No overnight interest charges
CFD financing only occurs when you hold your CFD position overnight and is normally charged at the RBA plus or
minus 2%. Ie if the cash rate is 3% then you will be charged 5% per year calculated back as a day rate. The easiest
way to remove this debit is to close your position by the close of trading that day.
2. Day Traders get acces to massive leverage
The greatest benefit of CFDs is the access to vast amounts of leverage and in many cases you get to trade up to
20 times your account size. The leverage component is definitely one side of trading that if left unchecked can
ruin a trader.
Say you made a 10% move on a $2,000 trade, you'd make $200. By leveraging your account up to 10 times you can
potentially make 10 times that amount or $2,000 for the same amount of effort. Remember that if the position moves
against you then you will lose 10 times the normal amount.
3. Liquidity is high among the top 100 ASX stocks
The ability to get in and out easily is paramount for short term day traders so you need to make sure the stocks
you are trading have plenty of liquidity. The Top 100 ASX stocks provide that liquidity. If you decide to trade
short term on high leverage then the most preferred option for serious traders is via a Direct Market Access (DMA)
broker as there are no requotes.
4. Brokerage with CFD Trading is quite small
One of the great reasons to make the switch from trading the stock markets to CFDs is the lower brokerage on
offer. Generally your brokerage is only $10 or 0.1% which is quite low in comparison to standard brokerage rates.
Another great advantage when trading CFDs is the ability to trade Commission free on products like commodities,
forex or the Indicies.
5. Volatility and CFD Trading work perfectly together
Day traders need the markets to move as there is nothing worse than a sideways market when you need to get in
and out intraday. One has to be cautious when trading volatile markets as risk is obviously increase along with
opportunity for profit.
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