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3 Essential Criteria to Determine the Best CFD Market For You to Trade

 


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Finding the best market to trade using Contracts for Difference (CFDs) is a very personal choice but we'll take a look at some of the key criteria you might want to consider to find the best market for you.

Here are 3 components that will make the most difference to choosing the ideal CFD market.

1. Trading a market that allows zero brokerage

2. Trading a CFD market with the right amount of volatility

3. Identifying your preferred trading timeframe and trading style

1. Trading a market that allows zero brokerage

First we will have a look at the concept of trading those products with no brokerage and the best way to get started is to keep your brokerage to an absolute minimum. There are some fantastic products that enable you to trade CFDs with zero brokerage or zero commission like index CFDs or Foreign Exchange. Not only are Index CFDs and Forex commission free but you can trade then for as little as $1 per point movement. When you are starting out, trading at $1 per point is a low risk way to ‘dip your toe in the water’ and get some live trading experience.

2. Trading a CFD market with the right amount of volatility

The second criterion to consider is market volatility. Most people trade Contracts for Difference on a short timeframe so selecting volatile stocks can give you access to ample opportunity. One of the best ways to identify a volatile market is using an indicator called the average true range (ATR). The Average True Range (ATR) will tell you exactly how volatile your market is on a daily basis. Another way to use the ATR is to fade the market at extreme ATR readings. However those who use this particular method need to have quite a lot of skill before doing so.

3. Identify your ideal timeframe and trading style

Markets like foreign exchange (Forex) and Index CFDs can be traded up to 24 hours per day and you will need to work out the most appropriate time for you to trade and build this into your trading plan. Further to this, you will need to work out what sort of timeframe you are going to trade as a 1 hour chart may not suit your trading personality.

If you are a very short-term trader you may wish to use something like a five-minute chart, therefore products like foreign exchange in index CFDs will be the product of choice, due to be high volatility and ample liquidity. If you're trying to trade low liquidity stocks and you are using a five-minute chart your find that there's a lot of dashes which represent no trades and low liquidity. These types of markets will be useless to a short-term trader.

What about the Forex markets?

Taking into account your trading capital will also dictate which markets you can trade. For example, if you have a small trading balance, then trading Forex markets over a medium to long timeframe will be futile. The Forex markets move too fast and have large minimum parcel sizes which mean you'll go backwards quickly if trying to trade FX on a longer time frame. You will find a shorter time frame with a small trading balance is the best for you.

Discover the 7 most Critical CFD trading tips and 2 of the most common CFD Trading Strategies. Learn more about the CFD revolution by going to http://www.learncfds.com

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