CFDs uncovered: Why you should consider trading CFDs

Julie Brownlee, Fsp Invest, 02 Oct. 2014

Tags: cfds, what are cfds, contracts for difference, why trade cfds, trading cfds, cfd,

Contracts for difference (or CFDs) are financial derivatives products.

What this basically means is the value of a CFD derives itself from the value of something else. In the case of CFDs this is usually shares and indexes.

So what exactly are CFDs? And why would you opt to trade them?

Let’s take a look…

What are CFDs?

CFDs are over the counter derivatives. What this means is you don’t trade them through an exchange like you do shares.

Instead of trading them through an exchange, a market maker provides CFD trading. This could be a dedicated CFD trading company or one of South Africa’s banks.

A CFD trade is an arrangement between two parties to exchange the difference between the closing price of the contract and the opening price of the contract.

Unlike other derivatives, one CFD contract equals one underlying share. With single stock futures, one contract equals 100 underlying shares.

Why trade CFDs?

There are a number of reasons why you might opt to trade CFDs.

One reason is to trade CFDs to hedge against your current investment portfolio. For instance, if you hold shares in Sasol and you expect the share price to fall, you could short (sell) Sasol CFDs to protect your position.

The other reason is to trade CFDs for pure speculation. For example, you expect shares in Sasol to rise, so you buy Sasol CFD contracts.

As CFDs are geared products, this means if the trade works the way you envisage it, you stand to make a decent profit from the rise in Sasol’s share price.

But with all financial derivatives, there are risks.

Because CFDs are geared products, this leverage magnifies any movement in the underlying share price. This means you could lose a lot of money if a trade doesn’t work out as you planned.

This is why when trading CFDs you need to employ strict money and risk management techniques to try to keep your risks to a minimum.

So there you have it, why you should consider trading CFDs.

*********** Advertisement ************

DOUBLE your wealth with these extra ordinary investments

We’ve uncovered an incredible system that combines the greatest investment strategies of all time with a highly technical Blue Sheeting analysis to help you make millions from the stock market with almost zero effort!

The results have been nothing short of PHENOMENAL!

This strategy constantly beats the markets every year. By September 2014, when the JSE All Share Index was at a mediocre 51.23%, our Stock of the Month portfolio was up 104.60%.

So, if you want to double your wealth… Let me show you how!


Related QA

lenita.fourie777 asked:
I have lost PLENTY in Binary companies. I have lots of dept. I only have R 5 000 available now to try and make up some losses. If everything goes [read more]
Published at 23 Feb. 2018 in: Trading 1 Answer
joe9976 asked:
I have bought the South African Investor Crypto Wealth Package so that I can start investing in Bitcoin. Sam Volkering recommended opening an account [read more]
Published at 23 Feb. 2018 in: Trading E-mail 1 Answer
deongt asked:
Hi Timon. I am currently subscibed to Rhst and have a broker acount with Gt247. I,m thinking of subscribing to Pick pocket trader. Can I use the same [read more]
Published at 21 Feb. 2018 in: Trading 1 Answer
emmamaya020 asked:
Hi Timon, I am directing this question to you out of great concern from within. I recently subscribed to RST tips for making extra profit and on [read more]
Published at 21 Feb. 2018 in: Trading Trading tips 1 Answer
e7469 asked:
I already have an active old trading account with GT247, can I use this account? It was not 1 of the 2 brokers you recommended. Sue Neumann [read more]
Published at 20 Feb. 2018 in: Trading Broker firms 1 Answer

Related articles:




Youtube Twitter Facebook

Connect with us:    

  • Accelerated Investor
  • Accessories
  • Accountancy