Most of the time, when you use CFDs, you use an intra-day, scalping or day trading strategy. This way, you do not have to pay any fees to keep your trading positions open overnight. These strategies require a lot of time, commitment and focus to try to follow the markets and surpass them. Intra-day and day trading strategies means you open and close a position in a single trading session.

One of the strategies that work well with CFDs is “scalping”. Thanks to the higher flexibility and low transaction costs of CFDs, scalping is ideal for trading the news. With this strategy, you take advantage of small and quick profits within a few minutes or even seconds.To be successful with news trading, it’s important that you follow a comprehensive economic and financial calendar, so then you will be aware of upcoming events or statistics that could affect the underlying asset you are trading. Winstone Prime Economic Calendar providing the most popular market news among traders.

How to trade the News?

With this strategy, you can either invest before a statistics’ release or just after the release. The aim of the 1^st option is to try to understand and anticipate traders’ reactions to the upcoming release. This can be very risky, as it’s hard to know whether the release will be above, below or meet the market’s expectations, or even how the market will react to such news (sometimes, bad news on the market is in fact treated as good news, and vice versa).

The second way to trade the news is to go with the flow, knowing that prices can easily and rapidly change direction. It’s then very important to use strict money management rules when news trading. You shouldn’t invest without stop-loss and take-profit orders, so then you can manage your risk.

If you are trading currency pairs, it’s important to follow any statistics that are important for central banks, as they are the main market mover in the FX market. Any statistics about growth, employment, consumer/business confidence or inflation can influence the growth outlook of a country, which will, in turn, affect the demand for its currency. Of course, central banks decisions usually trigger the highest volatility on the market.

To devise a pairs trading strategy, a trader will need the price data for the two markets, and then create a ratio (one market’s price divided by the other). When the ratio between the two moves outside its normal range then a trading opportunity is created.

To identify this, the trader can use Bollinger Bands, which are indicators that contain upper and lower bands that are two standard deviations from the ratio’s price. When the ratio hits the top or bottom Bollinger band then a trading opportunity is created.

How to trade it?

Pair trading allows you to take advantage of divergences between the 2 underlying assets. You first need to choose a strong and weak asset depending on the trend. You will then open a long position on the weaker asset – the one that is underperforming, while you will go short on the stronger asset.

Example:

Let’s pick 2 stocks within the French banking sector – if we see that 2 banks (Google and Facebook) suddenly aren’t following the same trend, then you know that the correlation is weakening. You can take advantage of this to make profits with a pair trading strategy. To take advantage of this divergence, short the company that is going up and go long on one company that is going down.

Usually, the overall direction of the market doesn’t affect the result, as you will be winning with one position and losing with the other one. The profit is based on the relative movement of the 2 stocks, not the market’s direction. Therefore, you will win on the difference between the 2 assets’ price, not the direction of these 2 assets.

Let’s say that you have a diversified portfolio with Coca-Cola, Bayer, BMW and BNP Paribas. You think that the French banking sector is weakening. You open a short position on BNP Paribas to hedge against a short-term decrease in BNP Paribas’ stock price.

Of course, you still have BNP Paribas in your investment portfolio, as you have a medium/long-term investment horizon. Another way to use hedging will be to hedge your whole portfolio with CFDs on an index rather than on a single stock. With our previous example, you could short the French index, the CAC40, or the French banking sector index.