When it comes to trading, the UK is a world leader. A report by the World Bank showed the UK was the fifth most prominent centre for foreign exchange (FX) trading in the world in 2016. And while there are many different types of FX trading, one of the most popular is CFD trading.
CFDs, or contracts for difference, allow traders to speculate on the movement of asset prices without having to own the underlying asset. This makes them a very flexible tool and one that traders can use to trade a wide range of assets, including stocks, commodities and currencies.
As with any form of trading, though, success in CFD trading depends on using the right tools. And fortunately, there are several different analysis tools available that can help you do just that.
One of the most popular analysis tools for CFD trading is technical analysis. Technical analysis uses past price data to identify patterns and trends to predict future price movements. Traders can then use this information to make informed trading decisions.
Several technical analysis tools are available, including indicators, oscillators, and trend lines. Indicators are used to measure the strength or momentum of a particular security, while oscillators help to identify overbought and oversold conditions. Trend lines identify the prevailing trend and potential support and resistance levels.
Another popular tool for CFD traders is fundamental analysis. Fundamental analysis involves analyzing the underlying factors that can affect the price of an asset. It includes things like economic indicators, earnings reports and political news.
By analyzing these factors, traders can better understand how the market is likely to behave and make more informed trading decisions.
Several fundamental analysis tools are available, including:
- economic indicators
- financial ratios
- sentiment indicators
Economic indicators track critical economic data, such as GDP growth, inflation and unemployment. Financial ratios look at a company’s financial health, while sentiment indicators measure consumer or investor sentiment towards particular security or asset.
Spread betting analysis
Another helpful tool is spread betting analysis software, which takes things one step further and allows for automated tracking and reporting of your spread betting accounts online.
One of the most versatile tools available to CFD traders is the Stochastic indicator. This simple tool can identify potential support and resistance levels and provide buy/sell signals based on the crossing of signal lines. Traders can also use the Stochastic indicator to provide insight into how strong the current trend might be, along with its overbought or oversold status.
One such tool is MT4, a widely used platform for trading Forex and other financial instruments. MT4 offers a wide range of features and tools that traders can use to analyze price movements and identify potential trading opportunities.
A somewhat lesser-known tool that many CFD traders in the UK find useful is Pivot Points for MT4. Pivot points are widely used by other financial instruments but should still prove helpful for Forex traders.
Traders using Pivot Points will typically look for crucial resistance and support areas when trading and entries and exits.
Individuals looking for more advanced tools may consider using a purpose-built platform explicitly designed for CFD traders. These platforms provide a range of data visualization tools and back-testing functionality that allows you to see how specific strategies have performed in the past. It enables you to formulate a trading strategy that considers historical price movement and maximizes your chances of success.
These analysis tools can play an essential role in CFD trading, but they are only effective if used with proper research, analysis and planning. That said, by using the right tools in the right way, you will make more informed trading decisions. And when it comes to something as potentially profitable yet risky as CFD trading, that’s what matters.
If you are looking for brokers that have mastered all analysis tools for stock, forex, and CFD trading, check out Saxo markets.