Long-term CFD trading means buying and holding. You must be wondering whether this is viable and how it would impact on your profits. After all, aren’t you trading on a margin? Essentially, you are borrowing a large cost of the shares and then paying interest.
Moreover, that interest is charged daily to your account. You must, therefore, be very keen on the interest costs. You must also ensure that the larger moves in your CFD trading position are enough to cover the costs.
Many traders use CFDs to hold long positions in order to build up their positive returns on their various investments. Trading comes with a lot of ifs and an investor must have a certain level of optimism to survive. Traders always think in terms of if everything goes as it should, their investment will bring certain returns.
However, you must understand that there is also the possibility of loss. This is expected in any type of trading that you get involved in. This is why every trader calculates their profit/loss equation even as they mull over their risk/reward one.
Long-Term Trading Should Not Be Ruled Out
Long-term trading must not be dismissed due to generally held notions. You should weigh it against your trading objectives to see if it is the perfect fit for you. If investment choices are on point, then your return may good enough to cover the interest charges.
These charges are usually higher than bank charges but with good returns, your profits will barely feel them. As long as you pick a profitable option, your profits can be as much as ten times your shares. Furthermore, you can purchase as many shares as you can afford.
The bids and ask prices are spread out reasonably. Also, the commission is manageable as it is only a fraction of a per cent.
Timeframe for Long-Term Trading
A few traders may feel that buying and holding is stressful and they will opt for short-term trading. However, if your objective is to make profits in the long run, long-term trading is the best fit for you. Then the timeframe will be a non-issue.
Long-term trading can run for a few weeks, months or even years. Traders who opt for long-term CFD trading must understand that they must use a different approach. For instance, you must be in a position to ride the bigger market movements.
This will require you to set wider stops to prevent your trade from being stopped early due to the usual market variations. You can keep your trade safe by opting for smaller position size. This would still be profitable because you are taking advantage of bigger markets and these are usually worthwhile.
Going Short vs Going Long
In long-term trading, going short is often more lucrative than going long. This is because prices are known to decrease faster than they increase. An experienced UK trader, for instance, will see a decline and act by taking a short position using commodity CFDs.
They will get paid a nominal amount of interest for the period the trade lasts. The amount paid may not be much. However, the position taken that CFDs are not viable for long-term trading due to charges is proven wrong.
In the event that you have shared and you expect the market to fall, keep your shares and go short. This protects you from loss and if the shares go down, the value of the CFDs will shoot up. Then you will be able to hedge your position.
You can also hedge your position with options. However, those are not flexible because you will need to take a determined size of shares. Nevertheless, if the shares increase in value, you lose the gains you have made by losing on your CFDs.
Long-term CFD trading is certainly worthwhile and can make you some handsome profits. However, you must be patient and also watch your trading positions carefully. Gathering information about the markets to trade is also advisable.