Trading and digital technology are becoming increasingly inseparable. Thanks to the advancement of fintech, traders are given more options and flexibility to engage with the financial markets.
Given the sheer number of financial instruments available in the market, having an intuitive trading platform has become indispensable. It can help traders obtain market-moving information with ease, making their trading process more efficient.
High-tech, powerful trading platforms are particularly useful for novice traders. Their built-in fundamental and technical analysis tools are great resources for beginners to learn about the ever-changing financial markets.
Exness is a leading multi-asset broker that provides an optimal trading environment where traders can make potential profit. Its trading products and services are available through the Exness Trader, the broker’s mobile trading app.
You can install the Exness Trader on your mobile devices. Another option is to download Exness app for PC.
What trading products shall we opt for in order to become a successful trader? Some of the most popular financial products among skilled traders are Contracts for Differences (CFDs).
Despite the popularity of CFDs, much of them remains mysterious. We are here to deconstruct the myths and misconceptions around CFD trading. Read on and you will also find some useful tips and tricks on how to successfully trade CFDs in 2022.
What is CFD Trading?
CFD stands for Contract for Difference. It is a contract agreed between a trader and a CFD broker.
CFD trading enables traders to speculate on the price movements of financial instruments without taking ownership of the underlying assets. It makes it possible for traders to gain exposure to the financial markets without a substantial amount of capital.
You can go long or short based on your price prediction. Go long if you anticipate an increase in the price of your chosen asset. Contrarily, you can go short if you are expecting a fall in the price of the asset.
From What Countries and Regions Can I Trade CFDs?
Regardless of the global availability of CFD trading, CFDs are restricted in many countries.
Before you decide to start trading CFDs, find out whether CFD trading is allowed in your country of residence. Below is a list of countries where CFD trading is currently available:
- Canada
- Spain
- France
- Italy
- The United Kingdom
- Germany
- Belgium
- Denmark
- The Netherlands
- Switzerland
- Sweden
- Norway
- Singapore
- Australia
- South Africa
- New Zealand
- Hong Kong
- Thailand
CFD trading has gained momentum since the Covid-19 outbreak in 2020. Today, the UK, Australia and the Eurozone are leading countries where CFD traders make significant strides in the trading market.
The Best CFD Trading Strategies for 2022
Whether you are a newcomer or an experienced trader, you need a strategy in place when trading CFDs.
Developing and executing a trading strategy requires plenty of preparation, and that involves preparing to lose. We have put together a list of CFD trading strategies to help you plan your trading journey in 2022.
- News trading. Traders adopting this trading strategy study upcoming financial news about a particular asset. They open long or short positions accordingly before or after a news release.
- TAT (Technical Analysis Trading) uses a set of indicators and graphical tools to make analytical predictions on the favorable market flow.
- Pair trading. It involves investing in two CFDs within the same industry. Such a strategy allows traders to operate in low or high market volatility and benefit from the divergence of asset’s values.
- Swing trading. Swing traders look for markets that are on trend and target assets that have potential to move over a short period of time.
- Hedging. Hedging is typically utilized when a trader already has a portfolio of CFDs held in the long term. It enables them to protect against short drops in value.
Despite the variety of trading strategies in CFDs, not all of them are suitable for both novice and experienced traders.
For example, news trading is a preferable one for beginners to try. It is easier to follow news and economic events to predict upcoming market movements.
Beginners can add TAT tools later on to facilitate their market research. Exness’ trading platforms and mobile trading app feature analytical graphics and charts for traders to track changes in the markets.
Professional traders holding a diversified portfolio will find a method to minimize risks and protect their existing trades, for example, hedging or pair trading.
Risks and Volatility in the CFD market
Other than the advantages of CFD trading, traders should understand the volatility and risks that come with the CFD market before diving into CFD trading. Otherwise, they will only be exposing themselves to greater risks of financial losses.
Therefore, to become a successful CFD trader, one should get familiar with the potential disadvantages of CFD trading. They are:
- Risk of leverage change (when the margin rate falls in the market);
- Risk of position closure (when the trading account doesn’t contain appropriate funds to cover margin requirements);
- Market volatility (disbalance of assets’ prices caused by many factors);
- Gapping (a sharp jump in price);
- Holding costs (a commission charged for keeping certain positions longer than they are supposed to be).
Whatever strategy you opt for, there are always ways to protect yourself from risks. It’s all about knowledge, practice, monitoring trading accounts and checking their balance.
For beginners, it is a good idea to start with a demo account with virtual money. A demo account allows you to practice your trading strategy, identify your mistakes, learn about market movements and gain confidence without risking real money.
FAQs
- Is CFD trading safe?
You can experience safe trading on trusted trading platforms. CFD trading comes with a certain level of risk, but there are occasions when traders lose their funds because they have chosen an unreliable CFD broker. So make sure you have chosen a licensed and regulated brokerage before you start trading.
- Do CFDs have an Expiry Date?
CFDs are categorized into two types: spot prices and futures. All CFDs on futures have an expiry date by default, whereas the spot version does not expire. So, before placing a trade, learn the CFD types presented on your trading platform and find out which of them expire and which don’t.
- Is CFD trading legit?
CFD trading is considered legitimate in countries where CFD trading products are regulated. For example, CFD trading is illegal in the USA because regulators do not permit it like the SEC or CFTC.
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