Scalping is a really exciting strategy when you know how to implement it. Of course, contract for differences can be used successfully for applying this strategy. By definition scalping is a type of trading where small profits are made consistently. Trading CFDs by scalping in not in any way easy, not impossible but hard and requires a lot of trading experience as well as excellent knowledge of execution itself.
After you read this article let me know how it contributed to your trading knowledge. Was it useful for you?
First of all, you need to understand the Contracts for differences and this article on what CFD trading is explains well the major characteristics of it. CFDs are based on a variety of instruments, basically on almost all offered in the financial market.
- Curency Pairs ? Also known as Forex, currency trading takes a form of CFDs in the European Union as this is the definition implied by MiFID (the unified law about financial instruments trading in EU). Trading currency pairs is wide spread and easy to access ? they are traded 24/5 and constitute the biggest market in worlds with its 4+ trillion of US dollars exchanging hands every single day. Interesting facts about currency trading can be found in this comprehensive article on what is Forex trading.
- Shares ? Trading shares has been around for many years but nowadays CFDs give a quite straightforward way to trade them.
- Stock indexes ? used as a benchmark of country?s economy they also can be traded via Contracts for Differences
- Oil ? Oil futures contracts can be traded with CFDs with no need of contacting a broker on the stock exchange
- Gold and Silver ? Usually called ?bullion? they go with Forex and are quoted against the USD
- Commodities and more ? The CFDs has unmatched scope and can be based basically on everything ? Wheat, Corn, Cocoa and even the weather.
All these instruments can be traded with a scalping strategy. As stated before the scalping minimizes your losses and allows you to make small but consistent profits. Each trade is made for approximately 2-3 minutes with the only purpose of getting a profit.
How to plan your trades?
As opposed to long term trading where you will need to have thorough fundamental analysis and follow the market news, the scalping will require just looking at the small market fluctuations. It is a micro environment in terms of time and market movements. The time frame for scalping is intraday to few minutes where you will make your trades. Some traders use the news (it is called ?news trading?) and they try to catch the movement of the market with a single trade during major economic news. This is usually a good strategy as long as you get the execution from your broker.
What is best to scalp?
On the first place that would be the Forex (currency pairs) as they fluctuate all the time. Especially the most traded currency pair which is EUR/USD. The higher liquidity means more traders and more movements during the day
Stock indexes are also a good opportunity for scalping as the crisis or upturns influence all the major indexes in the world. For example, during the constant European crisis down-turns caused by Greece each of the EU indexes went in a downtrend for ferw days and then recovered. These movements can be taken advantage of by placing short and long trades with small amounts.
Large blue chip stocks are good opportunities for scalping. They usually move with the major trend but can be traded separately if you want to target a specific sector and not a whole country. With all the instruments the good part is that CFDs can be traded on leverage and you can maximize your profits.
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Source: http://financialinteractive.com/finance/cfd-scalping
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