There are many benefits to CFD trading, but not all of them are obvious at first glance. There is the obvious advantage of leveraging financial resources from major global financial institutions. CFDs are traded on global markets, so there is always a market for those assets that you wish to buy and sell.
But CFDs offer other benefits over traditional options and stocks when it comes to investing in financial markets. For one thing, CFD trading is not limited to any single sector or company. You can speculate on almost any financial instrument. In addition, CFDs are not tied to any particular currency.
This means that you can speculate on currencies of any origin, ranging from the most volatile Euros to the more stable US dollars, and even between different world currencies. All these benefits lead to one of the main benefits of CFD trading: flexibility and control of risk/reward scenarios.
To speculate on shares using CFDs, you need to initially put down a large amount of money – typically around 20% of the overall value of the shares you wish to trade. The purpose of this initial deposit is to cover the margin requirements of your broker, who will then be in charge of placing the trades on behalf of you.
Leverage is exactly as it sounds: you use this higher amount of money to trade shares that are much more valuable than the amount of money you have put down so you make a profit when the market moves in your favor.
The margin requirement means that you have to ensure that you can cover your initial investment for more than two years to take advantage of the benefits of leverage. However, if market fluctuations move against you and you need to reduce your holding period, you can reduce your exposure by pruning your positions immediately.
CFDs allow investors to trade shares via the internet without ever leaving their desks. This means that the advantages of CFD trading south Africa are not limited to the advantages of trading on your own time and in your way. Because this trading method is executed online, you do not have to pay commission fees to your broker or exchange broker – there are no trade capital costs either.
Therefore, traders do not lose out on the convenience and cost savings that come from utilizing this online method. CFDs also allow you to enter and exit the market more frequently throughout the day, giving you more opportunities to profit from price changes, which can be especially useful during trading hours when the majority of market activity occurs.
CFDs allow you to speculate on the price movements of underlying assets with only a small amount of money put down – leverages are based on your account balance rather than the underlying asset value.
Leverage allows you to benefit from the momentum of the market and to make larger profits when the market shifts in your favor. It is important to bear in mind, however, that you are going to incur costs related to leverage.
CFDs will require a margin of at least 10% of the trading value of your account to open a position. This means that you will potentially be putting up collateral for the risk of your investment, and this will need to be protected in the event of a loss. You will also incur costs related to maintaining a margin – if you want to close out positions quickly, you will need to pay fees associated with this as well.