Investment and trading to add an extra layer to a bank account seem like a good idea now more than ever. With concerns about the economy across the globe, there has been a move to understand complex financial strategies such as buying and trading Bitcoin or opting for CFD trading. These offer a fantastic way to hedge against the dollar by investing in assets rather than storing funds as fiat.
What is CFD trading and how does it work?
Trading contracts for difference (CFD) trading is a method of predicting and betting on financial markets without buying or selling underlying assets. CFD trading refers to the buying and selling of derivative products (CFDs) which allow investors to speculate on financial markets (including shares, forex, indices and commodity assets) without the need to own the underlying assets. When a user trades a CFD, they undertake an agreement to pay or gain the difference in the price of an asset from the time when they open a contract to the time they close it. A reason why CFD trading has become so popular is that it’s based on speculative trading, betting on price movements in either direction with the potential for profit or loss depending on the range of the forecast.
How to hedge with CFD trading
With the rattled economy and financial concerns about fiat, investors have taken to hedge against the dollar and other national currencies. Like Bitcoin, cryptocurrency and gold, CFDs can also be used to hedge against other losses that might occur in an investor’s existing portfolio.
For example, if an investor sees that some of their shares in their portfolio might suffer a short-term decline, they could offset some of the potential loss by going short on the market by means of a CFD trade. In this way, if the shares do face a loss, the risk is mitigated by the gain from the CFD trade.
Five simple strategies for CFD trading
Stick to your strategy
Start the way you mean to finish. Find a strategy through research and looking at historic trends and stick to it! It would be nice, but betting on a trade “on a hunch” is not going to earn you much in the long-run. If you are able to find a strategy in your trades that you can sustainably stick to without changing frequently, you’ll learn more than if you consistently change your methods without seeing what works well and what doesn’t.
Watch the CFD leverage
While you stick to your strategy, manage your expectations around the movements in the market too. While you shouldn’t make hasty changes frequently and avoid making panic moves as a result of any volatility of your CFD, don’t fall into the trap of becoming too stubborn or excited either. To avoid hasty mistakes and long-term regret, make sure you keep your CFD level under control.
Preserve your capital
You aim should not be too make more money, especially if you are just starting out. Rather, it should be about protecting the funds you are investing first. Instead of looking for a high risk-high reward option, learn the lessons of the market and aim to mitigate any losses. Choose defensive trading initially and then when you have more confidence, go for more offensive trades.
Reach out to the community
Everyone started somewhere. If you are just learning to trade, don’t be nervous or shy to ask for help. There are countless platforms and websites with forums where you can pose a question and get support from the community. Where possible, learn from other’s mistakes to avoid making your own unnecessarily.
Keep your focus and stay on high alert
If you’re a beginner, there are expert traders who will be happy to earn from your mistakes. So rather than make silly mistakes, preserve your discipline and stay on high alert.