CFDs and intraday trading

Intraday refers to the way that prices move for any given asset over the course of a day’s trading.

  • By AdminFund

  • March 28, 2019
  • 9:03 pm BST

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Intraday refers to the way that prices move for any given asset over the course of a day’s trading. It is therefore one of the ways in which the short-term trades popular with contract for difference investors are known. With CFDs, intraday trading sees much of the appeal lie in the way in which results come quick and fast, but of course this requires a ‘hands on’ approach that not only needs a high level of alertness, but also takes courage in order to maximize profits from such a fast turnover of trading positions.

Another one of the aspects of intraday trading that appeals to CFD users is that trades are completed every day, which means that fees and costs are easily calculated and remain transparent. As CFDs are available based on many different financial products, underlying assets and markets, this also means that accounts at several different brokers or dealers are unnecessary, which is another boost for those looking to make intraday trades spread over various interests.

Going short

Of course, the terms ‘going short’ and ‘going long’ don’t relate to the length of time that a trading position is held open for, but they still have a connection to intraday trading with CFDs. As a contract for difference makes it as easy to do one or the other and because intraday trading can rely on minor price fluctuations to see significant ongoing profits, many traders choose this combination because it is so convenient and easy to use.

Another big issue for CFD traders is that being a margined product, interest is payable every day, so using intraday trading where a position is not held overnight not only speeds things up and simplifies them, it also works out to be more cost-effective too. Stop loss orders can also become victim to the overnight movements of global markets, so avoiding the risk of this so-called ‘gapping’ is another feather in the cap for intraday trades.

Day trading for profit

Selection criteria for day trading may need a slightly different approach than for other forms, but essentially the whole ethos of CFD trading is based on utilizing data in such a way as to forecast price movements accurately, so the smallest time frames should not present a problem. Technical analysis is a popular method of data analysis with active CFD investors for exactly this reason, although, of course, fundamental approaches can have their place too. Even so, the speed of intraday trades and the sometimes small fluctuations that can make the difference between success or failure are unlikely to be unearthed by longer time frame fundamentals and much more likely to come to light from technical strategies.

News trading

One of the innovative ways that CFD traders strategize is by taking account of developing news headline stories. This type of live-feed data is readily available and can be interpreted quickly and easily by anyone that has been following certain threads or stands in economic or financial developments. Being able to react quickly to these inputs is another advantage that CFDs offer, as being able to take a position based on something that is making an asset or market move in a particular way is a key element in successful intraday trading.

Exit points

Of course, any successful trade relies just as much on the time of exit as it does on any other consideration. For day trading, this can take on an even greater significance as preserving capital should always be a priority, meaning that exiting a trade if it goes against you is something that needs to be done quickly and without hesitation. Of course, various tools that come built-in with contract for difference, such as stop loss orders and trailing stops, can be used to automate this process and provide a safety net that can be an important part of a risk management strategy. However, being on the ball and taking a personal interest in the way things are going is really the only sure way to time exit points to achieve the best outcomes.

Risk

Intraday trading has long been seen as one of the riskier forms of trading on the markets, but the nature of it does mean that profits can also be built up quickly and compounded over longer time frames to make small gains become significant profits. Having a detailed trading plan is essential to success, as is choosing a CFD broker suited to this way of doing things.

Small reversals or ‘swings’ can influence intraday trading results far more than they do on longer-term positions, but once again, the markets or assets chosen for CFD trades are usually of the more volatile kind anyway, so this form of risk can be more of an advantage to making a good CFD trade. Experienced traders know that a chaotic scenario where rapid prices rises and falls can be dangerous ground for day trading but swing trading can be profitable if approached with the right level of caution and respect.

The simplicity of CFD trading makes it suited for those interested in day trades, and the flexibility it offers in terms of markets is another way in which it gives added appeal for faster turnarounds. So, whether going long or short on a market, looking for swings or using a news strategy to best effect, intraday trading and CFDs can go hand in hand for successful trading.

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