Building an Optimal CFD Portfolio During a Crisis

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Building an Optimal CFD Portfolio During a Crisis

A lot of financial and economic uncertainty lies ahead and as CFD traders, we must find solutions on how to optimize our trading regime. It’s almost certain that we’ll have an economic downturn in 2020 and with that in mind, how can we build the most optimized CFD portfolio?

#1 Trade liquid instruments

Liquidity is one of the main issues when an economic downturn occurs. If you want to exploit volatility, then it will be better to trade some of the most liquid instruments. Currencies, indices, and ETFs are some of the most popular examples. Although the temptation will be high to jump into stocks or commodities, be aware that due to lower liquidity, daily price variations will be high and you’ll have to trade with very high stop losses.

As we’ve seen in the past few weeks, even the most liquid instrument can have wild swings, so keep a conservative approach. You won’t get rich quickly by exposing yourself to difficult trading situations.

#2 Don’t forget about gold

Issuing new debt and printing money are some of the common solutions of governments when the economy performs poorly. Even though in the short run, it could provide some relief, there are several long-term implications that should not be ignored. High inflation and a diminishing purchasing power of money will affect the lives of many people, especially those with fixed incomes.

Trading gold contracts is a common custom among professional CFD traders. That happens because gold becomes a safe place against high inflation. Liquidity in gold increases and a lot of trading opportunities arise. We must mention, though, that gold could perform poorly until the economy bottoms out. The same thing happened during 2007-2008, when it underperformed, only to start a major bull run in 2009, once economic activity started to improve.

#3 Stick to a small list of contracts

When markets are dominated by fear, financial assets will go through choppy periods. Since there could be so many variables that will impact market valuations, it will be better to trade a small list of instruments, at least until volatility settled. Decide on a maximum of 4-5 instruments and stick to them, no matter what happens in the market. It will be much easier to monitor the performance and find opportunities quickly. One thing’s certain – you will miss a lot of trading opportunities. But the question is: How will you be able to profit from those that you find?

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About us

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