What is CFD Position Trading?
Definition of CFD Position Trading
Commonly known as trend trading, this strategy involves traders establishing a long-term position and closing it at the right time. Aside from patience, you must constantly monitor the asset’s performance.
You may also have to pay holding fees. The most common charge is the overnight holding fee. Position traders hold their positions for several weeks or even months.
Differences Between Position Trading and Other Trading Styles
Day and swing trading are two of the most popular alternatives to position trading. The main difference is the time it takes to exit these positions.
Day traders open and close frequent positions within the same trading day. On the other hand, swing traders open short to medium-term positions. The duration of swing trades ranges between a few days to several weeks.
In contrast, position trading involves holding an asset for weeks, months, or even years.
Benefits of CFD Position Trading
Capitalizing on Longer-Term Trends
Position trading lets you capture profits from long-term market trends. You can ride these trends for several months while reducing the impact of short-term fluctuations.
Reduced Time Commitment Compared to Day Trading
Position trading works perfectly for full-time employees who can’t commit to CFD day trading. Unlike day traders, position traders don’t have to spend the whole day studying charts or worrying about minor market fluctuations.
Risks and Considerations
Overnight Financing Costs
The longer you hold your CFD trading position, the more it will incur overnight charges. This translates to an extra expense that can eat up your profit.
Exposure to Market Volatility
Since it’s a long-term trading strategy, you must account for market volatility as it will impact your position. There can be more uncertainty and slippage with this strategy.
Strategies for CFD Position Trading
Identifying Strong Trends
Use moving averages, momentum indicators, and volume analysis to identify strong trends. This way, you can better understand the market and make informed decisions.
Setting Clear Entry and Exit Criteria
You can determine the entry and exit points using trend analysis, price patterns, and technical indicators. Set a timeline so that you’ll know when it’s time to finish your CFD position.
Practical Tips for CFD Position Trading
Risk Management Techniques
- Identify the best position size depending on your risk tolerance.
- Set stop-loss orders.
- Do thorough research.
- Spread your investment across multiple financial markets.
Monitoring Positions Effectively
Even with your stops and limits set, you must diligently monitor your positions. Doing so will help you spot a possible reversal. More importantly, this will help you act before your losses increase. It also helps to set up price alerts for immediate notifications.