The leverage Contracts for Difference (CFDs) offer make day trading attractive, however, before starting a day trading plan you must asses the benefits and downside of using CFDs in your strategy .

Below are some of the benefits of using CFDs in your day trading strategy :

Low Brokerage
The brokerage rates on share Contracts for Difference are much lower than on traditional equities, this means that you can trade more frequently for smaller price changes making Contracts for Difference extremely cost effective for frequent traders.

No interest costs
If you do not hold your Contract for Difference position open overnight you will not incur any interest charges.

Risk minimization
You are not exposing yourself to the risk of a stock or share CFD gapping up or down overnight as a result of world market movements.

Free cash flow
Because you are only holding your positions for a short time frame you are not tying up you funds, this means that when you find a trading opportunity you will have sufficient funds in your account to take the trade.

Although there are many benefits of using CFDs in your day trading strategy there are also some downsides , these are listed below:

Time
As all of your trading will be during market hours over short time frames you need to monitor your trading screen on a frequesnt basis, this process can be time consuming .

Decision making
As time is of the essence in day trading it is important to have a very good knowledge of your trading plan as you will need to make quick decisions about your trades.

Capital outlay
Day traders focus on making money from smaller price movements , therefore in order to make good amount of profit, it is important to start off with a larger float or use more gearing.

If you have the time, a good intraday trading strategy and can afford to commence trading with a bigger float, then day trading may be the right trading style for you. Before heading out, opening a Contract for Difference account and becoming a day trader you must read the following tips:

1. Trading Contracts for Difference is very much like having your own business, however, as Contracts for Difference are geared, there is a possibility of losing more than your actual deposit, using stop loss orders and having a tight money management plan will minimize this risk.

2. Before starting to trade, ensure that you understand and follow your trading strategy . You should start by testing your trading plan in a demo account.

3. All traders will have both winning and losing trades. Trading a profitable trading system is the most important factor in making profits overall . It is likely that when you begin trading you will have some bad trades. However, despite the fact that the number of bad trades is often more than the number of good trades, the size of the good trades are generally considerably larger than the loosing trades. In order to make regular long term profits, you need to thoroughly back test and understand your trading system.

4. To measure the performance of your trading system, you need to look at its profits as a percentage of your initial cash deposit, the maximum historical drawdown as a percentage of your initial cash deposit, the regularity of returns, and the profit-loss ratio along with the win-loss ratio.

5. Select your CFD provider carefully. Each CFD provider offers a different amount of CFDs some of which are short sellable and others not. The trading platform each provider uses determines the type of orders that you can use in your trading strategy. You will need to asses all of these issues as they may have an effect when back testing your trading system.

To find out more about day trading Contracts for Difference with International Capital Markets visit our Contract for Difference page and download our Contract for Difference help guide.