How to find CFD trading opportunities

  • By alexei

  • January 10, 2019
  • 8:56 pm BST

As contracts for difference (CFDs) become established as a popular way to make trades across a range of markets and assets, some traders, especially novices, may think that it will be more difficult to find suitable opportunities.

In fact, nothing could be further from the truth, and this is yet another reason why CFDs are becoming an even bigger part of day-to-day trading. Once a trader opens and funds an account, thousands of markets become available to trade in CFDs. Because the underlying assets are never actually bought or sold, things can move very quickly indeed.

Wide spectrum of uses

CFDs are usable in many different market environments. Traditional stock prices, of course, can be the foundation for taking a CFD position, but the overall performance of indices can also form the basis of a trade. Consider forex pairs, the full range of commodities and exciting new areas such as cryptocurrencies, and it is not hard to see that opportunities are plentiful.

With so many markets to choose from, it can be difficult for a new trader to know where to start. Even so, the fact that the trades themselves are based on the price fluctuations of the underlying assets means that no specialised knowledge or experience in any given field is a particular advantage, and the application of methodologies such as technical analysis tools can be all that is necessary to make an informed decision.

Tools

One of the major advantages that CFD trading holds for many people is that it works well with the modern trading environment and all the tools and data sources that it has to offer. As many trades are extremely short-term exercises, real-time data feeds can be of good use when taking a position with a CFD instrument.

Traders can identify and use trends to spot potential opportunities and actionable analysis. Using third-party signals offers large benefits to those who know how to make the most of the information on offer. Traders can set market alerts to trigger at certain levels or when certain moves take place, and news stories and headlines can even filter into the mix to create a meaningful overview of what is happening in various markets.

Triggers 

Knowing how to identify triggers is a key element in successful CFD trading. Traders can work out which factors drive certain responses when deciding whether an asset price is likely to go up or down. Spotting potentially profitable CFD opportunities is essentially a mix of art and science and making an individual and personal decision is fundamentally at the core of taking a position, be it long, short or hold.

Another advantage that CFDs have over other forms of derivative trading such as options and futures is that there is no set time frame involved. Although traders may generally perceive CFDs as day trades or shorter, they can quite easily take a hold position when they think that it is beneficial to do so.

Wider economy

As the potential trades for CFDs come from such a wide range of assets, the wider economy and how it affects businesses of all kinds can be a major influencing factor. As well as asset classes, headlines can have an effect on entire industries, whether they consist of an announcement from a central bank or a movement by a large international company or financial organisation.

Such “wide economy” triggers can include inflation figures, interest rate changes, unemployment statistics, oil prices and a multitude of similar macro influences. Prices are sensitive to many more factors than what someone is prepared to pay for an asset at any given time, so when certain economic triggers appear, they can and most likely will affect market movements. Getting the timing right and picking the right position to take are two vital aspects in making a trading opportunity turn into a profitable CFD trade.

World news

 As well as applying data charting methods such as technical analysis, a recognised information gathering strategy for CFDs consists of taking full note of the news headlines. As no market operates in a vacuum, world affairs are likely to have as much impact as financial news and economic developments.

Markets may only indirectly react to various news triggers, including terrorism, epidemic outbreaks, severe weather events or political upheaval, but all these factors are highly likely to affect how various assets behave in terms of value.

Because CFD trading can be an extremely hands-on experience, reacting to events in real time may make or break a trading position. The value of CFDs can change positively or negatively due to a news story spreading across the world, and it is important to remember that these alterations can present what might be the best opportunities for traders to capitalise on certain assets.

Opportunity knocks

Specific industry triggers are not the only influences that come into play when carrying out successful CFD trades. The decisions that investors make and the opportunities that they identify can come down to many different factors.

At the heart of a successful CFD trade lies the ability to spot a likely price outcome for the underlying asset. As the trader never owns that asset, the speed of transactions can be very fast. With the micro-management of data and information allowing many different scenarios to potentially occur, finding new opportunities for CFD trades is something that should never present a problem.