Day Trading CFD's Online and Essential Things To Know
Looking to start day trading CFD's? Here are some essential things to be aware of..
Day trading CFDs is a very different strategy to swing or position trading which involves holding a position over a long period of time. As the name suggests, day trading involves buying and selling a Contract For Difference on the same day. The trader simply buys a CFD online in a security and closes their position before the trading day ends. This is ostensibly to ensure no overnight charge occurs but there are various other reasons for this form of trading. Internet trading has enjoyed a huge increase in popularity due to the ease in which traders can buy and sell shares. When this convenience is coupled with the fact you do not have to own shares to trade with CFD’s, it is easy to account for this explosion of interest.
Potential For Quick Profit
There are numerous benefits when day trading online. Traders are able to trade long and short meaning it is possible to make a profit if the share rises or falls depending on which way you elect to trade. The fact that CFD’s are traded on margin is especially pertinent when it comes to day trading. Having the ability to leverage your position means control of stock worth at least ten times your initial investment. This mean that even small movements in your favor during the day will result in generous profits. Liquid stocks are ones that have large amounts of traders willing to buy and sell and are the most obvious candidate for day trading CFD’s. This movement makes it easy to open and close a position in quick succession.
Avoid Market Open Gaps
Possibly the main reason for day trading CFD’s involves not owning the share overnight. The aforementioned charges are one reason for this, but another is the fact that holding a position overnight leaves your share open for gapping (a change between a stock’s closing and opening value). You don’t want to be caught with your pants down with a gap up or a gap down that goes against you. A gap up or gap down could work in your favor, but if it goes against you, it could completely alter your exit strategy. Every CFD position that is held overnight incurs interest charges.
Of course day trading CFD’s has disadvantages and there are certain risks involved. Experienced traders know that the market can be volatile on any given day so it is necessary to constantly monitor the screen to ensure no dramatic changes are going against you. If you are only a part time trader and have a regular job, day trading CFD’s can only really be attempted on a day off.
High Risk Leveraging
You will need to be well acquainted with the system you use because it may be necessary to use an quick exit strategy. As trading CFD’s is generally used to profit from small market moves, it is necessary to use more leverage which is extremely risky. If the market moves against you on high leverage, the results could be devastating.
If you believe day trading CFD’s is suitable for your needs, it would be an excellent idea to attend a trading course where an experienced trader will give advice and tips on creating a solid trading system. Day trading CFD’s is faster and riskier than regular trading but it is also very exciting.