Short term CFD Trading has become one of the most popular approaches among modern traders who want to capture fast market movements and maximize profit opportunities within a short time frame. This article will explain short term CFD trading and provide practical strategies for you to get started.
What is short term CFD trading?
Short term CFD trading is a form of Contract for Difference (CFD) trading where traders open and close positions within a short period, ranging from a few minutes to a few hours or a few days at most. The main objective is to take advantage of small but frequent price fluctuations in financial markets.
Unlike long-term investing, traders do not need to wait for major trends. Instead, they focus on short-term price movements to maximize profit opportunities in a shorter time frame.
See more:
- What is CFD? Contracts for Difference Explained for Beginners
- Types of CFD Risk and How to Manage Them Effectively
- CFD Capital Management: Effective Principles and Strategies
- Explore the Top 10 best CFD brokers for maximum profit
Why choose short term CFD trading?
As mentioned in the definition section above, short term CFD trading typically occurs within minutes, hours, or a maximum of a few days. Investors prefer this style for three main reasons:
- Exploiting volatility: Within a single day, gold or the EUR/USD pair can fluctuate by hundreds of pips. Short term CFD trading allows you to ride these “micro-waves” rather than waiting months for long-term trends.
- Optimizing swap costs: Holding positions overnight usually incurs a “Swap” or overnight fee. Day trading eliminates this cost entirely.
- Capital rotation: You can close positions, realize profits, and immediately reinvest in new opportunities, avoiding the trap of tying up capital in long-term holdings.
Most popular short term CFD trading strategies
To succeed, you cannot trade based on intuition alone. Below are the most popular and effective short term CFD trading strategies that you can refer to.
Scalping
Scalping is a trading style designed for traders who prefer fast-paced execution, entering and exiting positions within seconds or minutes. The main objective of scalping is to accumulate small profits from multiple trades throughout the day.
Advantages
- Allows traders to take advantage of numerous trading opportunities during the day
- Enables quick profit generation when market conditions are favorable
- Reduces news-related risks since positions are not held for long periods
Disadvantages
- High risk due to the fast-paced nature of trading
- Significant psychological pressure, which can lead to loss of control
- Requires a broker with low trading costs because of frequent transactions
Day Trading
Day Trading is an effective short term CFD trading strategy in which traders open and close positions within the same day without holding trades overnight. This strategy typically relies on technical analysis, price patterns, and short-term news to identify accurate entry points.
Advantages
- Helps avoid swap fees since positions are not held overnight
- Allows traders to take advantage of intraday market volatility to generate profits
- Does not require as much capital as long-term trading strategies
Disadvantages
- Requires significant time to monitor the market continuously throughout the day
- Easily affected by unexpected news volatility
- May require strong market analysis skills and quick decision-making abilities
Breakout Trading
This strategy is based on trading when price breaks through key support or resistance levels. When price breaks a support or resistance zone, it indicates that strong momentum is pushing the market in the direction of the breakout.
Example:
- If the price breaks above a strong resistance level and closes above that zone, traders may enter a buy position expecting the price to continue rising.
- Conversely, if the price breaks below a strong support level and closes beneath that zone, traders may enter a sell position expecting the price to continue falling.
News Trading
News Trading is a strategy that takes advantage of strong market volatility immediately after major economic news releases, such as interest rate decisions, Non-Farm Payrolls (NFP), or inflation data. Traders often enter positions quickly based on expectations before the news and the market’s actual reaction after the announcement.
Advantages
- Potential to generate profits in a very short period of time
- Effectively capitalizes on highly volatile market conditions
- Focuses mainly on specific news events
Disadvantages
- High volatility can lead to slippage and widened spreads
- Risk management can be difficult without sufficient experience
- Requires constant monitoring of the economic calendar and extremely fast reaction times
Important analysis tools in short term CFD trading
In short term CFD trading, the chart is your most important weapon. You must master the following tools:
Essential Indicators:
- RSI: Identifies “overbought” (price too high, ready to drop) or “oversold” (price too low, ready to bounce) conditions. Generally, levels above 70 are overbought, and below 30 are oversold.
- Moving Averages (EMA 20 & 50): In short-term trading, the Exponential Moving Average (EMA) reacts faster to price. When the price is above the EMA, it signals an uptrend, and vice versa.
- Bollinger Bands: This tool measures volatility. When the bands contract (a “squeeze”), a significant price breakout is usually imminent.
Price Action Analysis:
- Price Action helps traders read the market thru price movements by observing: reversal candlestick patterns, support and resistance zones, breakouts and pullbacks,…
Trading Timeframes:
- M1, M5, M15 for scalping
- M30, H1 for day trading
- H4 for overall trend confirmation
Pros & cons of short term CFD trading
Any type of transaction has its own advantages and disadvantages. And short term CFD trading is no different. Below is a detailed comparison table of the advantages and disadvantages of this trading method:
| Pros of short term CFD trading | Cons of short term CFD trading |
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Risk management in short term CFD trading
Most traders fail not because of poor analysis, but because of poor money management. CFDs use Leverage, a double-edged sword that amplifies both profits and losses.
The 1% and 2% Rule
This is the golden rule: Never risk more than 1-2% of your total capital on a single trade.
- Example: If you have $10,000, your maximum loss per trade should only be $100. This ensures you stay in the game even after a losing streak.
Mandatory Use of Stop Loss
In short-term trading, prices can swing violently in seconds due to news. A Stop Loss order is your “airbag,” protecting your account from a Margin Call. Always determine your exit point before entering a trade.
How to start short term CFD trading for beginners
If you are a novice, follow this 3-step roadmap to minimize risk:
Step 1: Choose a Reputable Broker
Do not rush to deposit money into brokers promising “guaranteed returns.” A reputable CFD broker should have:
- Licenses from top-tier regulators (FCA, ASIC, CySEC).
- Competitive spreads (crucial for scalping).
- Stable platforms (MT4, MT5, or cTrader).
Step 2: Practice with a Demo Account
Treat the Demo account with respect. Spend at least 1-2 months testing your strategy with virtual money. Once you can generate consistent profits on Demo, only then should you switch to a Real account.
Step 3: Keep a Trading Journal
Every successful trader keeps a journal. Record why you entered a trade, your emotions at the time, and the outcome. This helps you identify and fix recurring mistakes.
Conclusion
Short term CFD trading offers numerous opportunities to generate profits by capturing short-term market movements. However, it also requires strong analytical skills, discipline, and effective risk management. For beginners, starting with simple strategies, practicing on demo accounts, and focusing on capital preservation can significantly reduce risks. If you master the strategies and adhere to risk management rules, it can be a highly rewarding investment channel providing financial freedom.
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