Developing a CFD Trading System

A good CFD trading system requires good knowledge of the markets targeted. Generic systems also are possible, for trading many markets, but efficiency is poor.

Developing a CFD Trading System for Efficient Trading

A good and efficient CFD trading system requires significant effort and experience to put together. The most difficult challenge is dealing with market volatility, money management, and overall risk management for account survivability. It all looks good in theory, and many new traders, as well as coders attempt to create automated or semi-automated trading software to trade some markets. It all looks solid in theory, there is a lot of back testing involved. During testing the software seems to handle most of the challenges just fine, resulting in a positive equity curve. The problems arise when the user of that software trades with real money, and volatility has changed in the underlying markets. That’s when things start to go wrong, and is all because of the factor of compound interest. Even tiny, badly timed, changes of the variable which determines trading size, can result in massive changes in the profitability of that trading system. And because there is real money involved, the user starts interfering as well, ultimately making things worse. Many trading system developers, and especially coders, do not understand what is CFD trading, nor the volatility of the underlying markets. Even though there are mathematical models for dealing with volatility, risk and uncertainty. The complexity of such a well-modelled and well-tested trading system would be prohibitively expensive, and nobody would buy such a system. And if a trading system is fully manual, and no computer programs are involved, then it might be successful. But it will only be suitable for its creators, and it will have no commercial value.

 

Developing a Semi- Automated CFD Trading System

A good semi-automated CFD trading system attempt to get the best of both worlds, both automation and manual trading. Trading CFD contracts through such a system can be quite an experience, and there are actually traders who bring in automation to their trading through third party coders. But automation is limited, and only as much as routine tasks, calculations, and mathematical risk models require. Such traders use various CFD trading platforms, where trades can be executed fast, and they remain in control at all times. Their semi-automated trading system only produces signals and recommendations, which may or may not be valid. It is always down to the trader to decide. The automation however helps save time on routine tasks, and concentrate on the non routine, challenging tasks. That’s where one has to exercise judgement and think originally. That’s what computers and even advanced mathematical models cannot do. Generally, it is a bad practice to rely too much on coders for solving trading related matters, because all coders do is write programs. They lack trading experience and even in-depth mathematics for designing any unusual trading system. And most of them are involved in making simple programs for the mass market of amateur traders. Some of whom are good amateurs, but still not good enough to model market risks so well, so as to ensure account survivability at all times. The problem around volatility and variable trading size is so huge, that nobody has ever found some rule of thumb. Your trading system can look deceptively good, and pass through extensive back testing, and yet it can still fail next month! All because that month brought some peculiar changes in those variables, that the back testing didn’t have.