CFD trading is an investment vehicle that makes use of the difference in two prices to speculate on falling or increasing prices of a particular contract or asset. It’s similar to an interest rate switch or interest-only swap, but this is an asset and not a physical product. CFDs are derivative products that permit the value to change rapidly based on the current market price.
The trader expects that the contract prices will rise or fall to meet their CFD set price. This set price is often open to changes from CFD providers because market makers will usually not have a problem selling CFDs to traders that agree to pay them a fee to create the contract. If the contract falls to the trader’s side, the CFD can be sold for a profit.
cfd trading South Africa has been popular amongst commodity and forex traders because they can take advantage of short-term movements in the markets without paying fees. CFDs allow for greater speculation with less reliance on fundamental analysis.
CFDs are open to all-day traders, both large-scale and small, and they provide an easy way of making a profit. Because there are no minimum amounts of capital that need to be put up for the opening and running of a CFD trading account, it has attracted a lot of trading brokers who offer their clients a full-service day trading platform where they can execute their trades at any time of the day.
However, as a CFD trader, you need to be careful about the potential risks associated with CFD trading. One of the main risks of CFD trading is called leveraging and this means that you use your account holders’ funds to trade in the market.
By using leverage, you can potentially double your money in the trade, whereas if you choose to execute your trades without using leverage, you will lose all of your capital.
To help minimize the risk of leveraged CFD trading, you should choose a CFD trading firm that is regulated by a professional body. These firms have in-depth experience in the regulated environment and they often employ strict anti-fraud measures and risk management strategies to ensure that their clients receive the best service possible.
You mustn’t place larger amounts of money into your CFD trading accounts because these positions may only go to waste if you are unable to identify profitable trades. You may also lose your capital through bad market timing if you place orders that are too large.
CFDs also differ from traditional share trading because they are traded via a digital currency. This means that there is no physical item that is being held as collateral and, therefore, there is no capital protection. As long as you are sure that you can differentiate between the signals you receive and the actual payments you are due, then you will be able to enjoy the benefits of CFD trading, but you must make sure that you are aware of the difference between a CFD trading platform and a conventional share trading platform.