CFD trading strategies in depth

  • By Harrison Cole

  • February 15, 2019
  • 1:12 am BST

Anyone new to the realm of CFD trading might be surprised as to how many different strategies can be used to work out the optimum time to take a position and choose a market. The additional flexibility offered by many strategies that might seem unfamiliar to investors more used to traditional stock market trades is one of the many appealing elements that has made contract for difference such a booming sector.

Although established methods such as using technical analysis are tried and tested in terms of producing results, for some investors, researching the data sets and learning how to implement the processes and interpret the information produced can be too daunting a task. Thankfully there are several other trading strategies that can be extremely effective.

Rebate trading

The range of strategies that are available for CFD trades can come down to which platforms or trading networks are used. Not only do some brokers offer more data than others, relevance and real-time aspects must always be taken into account too.

NASDAQ, NYSE, CBSX and BATS offer rebates on certain types of trades. A rebate trader is usually not very interested in the amplitude of a price fluctuation, but they are concerned about the offered rebates themselves. The majority of profits are made using this particular strategy and for this reason, it tends to be used by CFD traders who have quite a lot of experience and knowledge on how to use this interesting but niche tactic.


Scalping is sometimes called spread trading and is a particularly active form of strategy, which is why it appeals to many CFD traders who are drawn to a more hands-on approach. Essentially, a trader using this method is looking for small profit opportunities that occur between the bid and ask price of a company’s stock or another underlying asset that conforms to the parameters needed.

These gaps can be exploited and used to build up a steady flow of small gains throughout the course of a day’s trading but it requires attention to detail and concentration, because anything from upwards of a dozen or more trades might need to be made in order to reap the rewards.

Swing trading

CFD trading is really based on the idea of swing trading, as the ups and downs of the value of a chosen market form the basis of the contract. An underlying asset that offers price movement potential can also have ‘wave theory’ applied to it. Being able to identify where a given price might fit into the theory at any one time allows a prediction to be made for when a reversal is due to occur.

This means that profit can come from movements in both directions and it is also well suited to the fast-moving pace of CFD trading environments, as opposed to longer-term investments favored by the ‘buy and forget’ brigade.

News headlines

Opportunistic trades can be the most satisfying and one of the most common strategies used to make successful CFD trades. This way is based on news headlines and breaking events. Of course, understanding the implications of various developments might not be as straightforward as it may seem, otherwise, everyone would be able to make a killing simply by keeping up with rolling news feeds.

For a savvy CFD trader though, this is a viable and proven method to gain an edge and make moves at the right times. Current events have many ramifications across the tightly integrated international economic systems that are in place today, and spotting where the ripples might end up becoming a wave is the true skill when it comes to making a success of a news-based strategy.

Hedging with CFDs

Hedging CFDs isn’t something for a beginner to try, but for those more experienced traders, it can be a successful strategy. Bringing down the volatility levels of a portfolio might seem counter-intuitive to CFD trading but by short-selling a CFD for a similar number of different assets, it can be used to prevent losses. One of the main advantages of this approach is that it allows a longer-term overview to be taken than might usually be associated with CFD trades.

Burnt fingers

Although there might not actually be a strategy called ‘burnt fingers’ there really should be, as learning from experience is one of the best lessons to put to positive and effective trading use further down the line. Even the most successful CFD traders have had and continue to have bad outcomes, but it’s the way in which these setbacks are dealt with that mark out those who succeed from those who ultimately fail.

Einstein famously said that the definition of madness was doing the same thing over and over and expecting different results, and that can really apply to trading too. When mistakes are made, they need to be analyzed in their own right with the aim of working out what went wrong and why. This knowledge can then be put to use in choosing future markets and knowing which positions to take and when to take them.

Mix and match

With all of these trading strategies and many more available to be used, it can be confusing for a novice CFD trader to know quite where to start. By trying different approaches out and experimenting with a mix and match of strategies, anyone can eventually find a good fit for their own personal investment style and aims. As everyone will have their own ratio of risk and reward there can never be a one size fits all answer to the question of whether one trading strategy is better than another, but having a coherent plan means refining a blend of methods to achieve best outcomes.