The Top 5 Reasons Why Day Traders Opt For Contract For Difference

Posted on August 29, 2010
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By far the most general question asked among budding CFD traders is ‘what are the most profitable CFD day trading strategies or the most profitable winning CFD trading schemes that the profitable CFD traders employ?’

Here we’ll take a look at the top 5 causes why day traders prefer to trade a contract for difference over other derivative products and uncover the most common CFD day trading strategies.

No overnight investing
CFDs have surely evolved into the ideal choice for short term day traders and there are a couple of key causes for this. Initially, CFDs undergo a financing rate when you hold a position overnight. The financing for long positions is typically the RBA rate (cash rate) +2%. So if the RBA rate is 7% then you pay 9% per year counted back as a day rate. One option to avoid this is to close your position before the trading day has ended up, thus evading the CFD financing rates.

CFD Leverage for day traders is unbelievable
Another key cause that CFD day trading strategies are quite popular is because of the fantastic leverage you get access to. You see, if you had $5,000 in a stock trading account then you can just trade $5,000 and a 5% move on $5,000 is just $250.

CFD liquidity on the top 100 ASX stocks is solid
One of the keys for short term day traders is a quite a liquid market and not ordinary other derivative products like options, CFDs reflect the liquidity of the underlying stock market. When trading utilizing a Direct Market Access (DMA) provider you can get access to and can see the exact volume available on every stock at different levels of depth.

Low commission rates for CFD traders
By far the biggest highlight for CFD day traders quite low commission rates. Indeed certain of the most popular CFD products are the index CFDs which are without any commission. This gives you access to a quickly moving output with ample liquidity for zero brokerage.
Pretend if you are day trading the top 100 CFDs, the brokerage is still very low. Many CFD brokers in Australia charge a minimum of $10 or 0.1% and this makes the day traders quite happy.

Day Traders opt for volatility which as been quite high recently.
Volatility and CFD trading are the perfect pair. Day traders can’t afford to sit there watching a stock run nowhere, they want movement and quick movement. When the markets are volatile, short term day traders are in their element and as usual profiting handsomely from the short sharp intraday movements.

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