Just like any other form of trading the buying cost and the selling costs too have a major impact on CFD’s. Another important factor involved here and bearing heavy importance is VWAP or Volume-Weighted Average Price. VWAP is in simple terms the average trading price which is dependent on the size traded. I will try and make this concept simple and easy to understand and comprehend by an example. Assume that a particular share trades only twice a day and that too in each session a fixed number of its shares are put forward for trading which here in the example is say 10,000. During these two sessions the stocks trade at 150p and 145p. this gives us the mean average price for trading as 145p while is also the share’s VWAP. Not differing from this example let us see what difference would arise if instead of same number of shares being traded during the two sessions one session has a different number of shares on the trading block. Let us put the number of stocks traded in the particular example mentioned as 10,000 and 1,00,000. Now though the mean average price stays put at 145p the VWAP figure changes to about 149.09. VWAP assumes an important position particularly in portfolio trading where the figure has the potential of giving an idea as to how well the transaction has been executed in terms of slippage.

Technical analysis of the shares which involves in depth analysis of all stocks individually has a major role to play in terms of short term trading. Apart from the two common strategies of Speculation and hedging which are used for almost all investment options there are several other strategies associated with Contract for differences which can make them a win-win option for you enabling you to reap rich benefits.

• Playing it short: Adopting a short selling stance by means of the flexibility which comes along with CFD’s allows one to reap benefits of a rising as well as a falling market. Giving the opportunity to trade on a margin combined with no stamp duty makes them the ideal instruments to carry out short term trading.
• Leverages arm the investor to magnify its profit as well as loss potential by giving them the opportunity to adopt a geared exposure stance.
• Since equity CFD shares do not result in any transfer of ownership therefore there is no publication of trades and the trader has the excellent opportunity to trade discreetly.
• By hedging the market exposure the investor achieves risk management.
• Another strategy adopted by traders involving Contract for difference is to use if for tax planning purposes where the equity CFD’s can be sold to lock in a good sizeable profit on a particular equity holding without bothering about any tax liability.
• CFD’s also allow the investor to avail the provision of pair trading. Pair trading gives one the opportunity to trade the price difference between two products. One can make use of CFD’s to go long on the cheaper stock option while at the same time one can choose to go short on the more expensive stock. Another possibility arising out of pair trading is where a stock is bought and the underlying index is subsequently sold short.