CFD trading is a widely used form of derivative financial trading. cfd trading South Africa allows you to speculate on either the direction of the price (up or down) of specific fast-moving global financial markets (or financial instruments). The CFD market was created in the early nineties in London, but it originated in Germany, where the CFD was first traded.
CFDs are derivative products that give their account holders the ability to gain from the fluctuations in prices between the opening and closing of the contract. One of the main reasons why they have become so popular is because they offer more reliable and predictable short-term trading results than traditional forex trading and financial investment instruments.
There are different types of CFD contracts. The simplest form is ‘margined’. Here, your margin will be the down payment that you make to the broker in exchange for a specified CFD. This CFD will represent an interest rate against the specified market index.
It must be kept in mind that any time you enter into a margin contract, you will need to pay the broker a margin fee of some proportion to your margin. These costs are relatively small relative to the profit that CFDs can bring in, so the temptation is to go for them wherever possible.
The main reasons why people use CFDs are to hedge their exposure to economic risks, to take advantage of falling markets and /or short-term volatility. However, if you’re looking at trading as a means of building your wealth, the reasons are not just logical, but also sound. The primary reason for using CFDs is to gain access to the financial market without using your own money.
Another reason why traders are attracted to CFD trading is because of the liquidity. Whereas with traditional share trading or traditional share investing, you may not trade on major exchanges, with CFD trading, you can trade in all of the major markets at the same time. This means that your decisions on where to invest your money are free of emotion and other influences.
The main reason that traditional traders think of CFD trading when they consider how to diversify their investments is that they don’t want to deal with shares again, so they choose to use their capital in this way. Consider for a moment how useful it would be to be able to trade shares of physical goods daily. You’d never have to worry about share price movements or news reports – you’d always be able to buy and sell at your peak levels at peak times.
CFDs, unlike shares, allow you to speculate on global financial markets. You don’t even have to own the underlying asset in this case. To speculate on something like gold, you must own shares of that asset, and you must own physical shares of that asset. With CFDs, your guess as to what the price of gold will be at any given time is based on the market for the underlying asset.
