Considerations for choosing a CFD trading strategy

CFD trading is becoming increasingly popular in Singapore to diversify investment portfolios and take advantage of leverage opportunities. When choosing a strategy for CFD trading, several factors should be considered, such as the level of volatility of the underlying asset, the type of order being used, and how much capital can be allocated. There are also considerations related to the investor’s risk appetite, trading style and knowledge base. This article will explore considerations for selecting an effective CFD trading strategy in Singapore.

Risk appetite

Risk appetite refers to an individual’s willingness or tolerance to accept losses when investing. The acceptable risk level varies from trader to trader, so it is crucial to understand one’s risk profile when considering a CFD trading strategy. Different strategies involve different levels of risk, and it is wise to choose one that falls within an individual’s comfort level. Moreover, one should always use a trading strategy that aligns with their overall investment goals.


Leverage allows investors to gain market exposure without committing large amounts of capital upfront. It provides the opportunity for greater opportunities or losses than would be possible with an unleveraged position. Therefore, it can be an attractive option for traders looking for increased volatility and potentially higher returns. However, it can also increase risk significantly if misused, so one must carefully consider how much leverage they want to use when selecting a CFD trading strategy in Singapore.

Asset type

Different asset classes have different characteristics which may influence the success of a particular trading strategy. For example, stocks tend to be less volatile than currencies, meaning traders looking to take advantage of short-term price movements may wish to focus on the latter. Understanding the characteristics of different asset classes is essential to select an appropriate trading strategy for each. Additionally, some strategies are better suited to specific asset types than others.

Order type

CFD trading involves using different order types such as market, limit and stop orders. Market orders are used when the trader wants to buy or sell at the prevailing market price. Limit orders allow traders to set the maximum price they are willing to pay for an asset. In contrast, stop orders enable them to exit positions automatically once a predetermined price level is reached. Choosing the right order type for each trade is critical for success in CFD trading, so it should be carefully considered when selecting a strategy.

Capital allocation

The amount of capital allocated to each trade should be based on the individual’s risk profile and investment goals. It is important to remember that although leverage can increase potential returns, it also amplifies losses. Therefore, traders should implement a proper risk management plan to ensure sufficient capital is available for each trade and that positions are adequately diversified across different asset classes. Furthermore, traders should avoid allocating too much capital to one trade as this can be very risky.

Why is a trading strategy essential?

Before developing a trading strategy, you must understand why it is essential. Understanding the reasons behind developing a strategy will help you identify the right one for your needs.

Risk management

A trading strategy can help you manage risk and limit losses. By understanding the risks associated with your trades, you can better protect yourself from potential losses. It includes setting appropriate stops or limits and diversifying across different asset classes.

Capital allocation

It is essential to allocate capital carefully to maximise your chances of doing well and minimise losses. A good trading strategy should consider how much capital you are willing to commit to each trade and which asset classes are best suited for your investment goals.

Emotional control

A good trading strategy should help you manage emotions such as fear and greed that can affect market decision-making. By sticking to your strategy, you are more likely to remain rational and make decisions based on logic rather than emotion. 

Improving performance

A good trading strategy can help improve your performance over the long term by guiding you in terms of entry and exit points and risk management practices. By following a consistent strategy, you are more likely to realise greater rewards and fewer losses than simply relying on guesswork.