A contract-for-difference is an agreement between a buyer and a seller. In such an agreement, the buyer has to finance a sum equivalent to the variation between the cost price when the contract was made and the sale price of that asset, whatever it may be. In this agreement, you do not own any underlying instruments, making the trade more cost-effective and efficient. In addition, the buyer can profit off the exchange by just speculating the increase or decrease of an investment.
CFD trading South Africa, New Zealand, Australia, Hong Kong sees a tremendous boost in popularity. The popularity is due to the flexible and diverse nature of this type of trading. In South Africa specifically, it is on the rise and has become the most competitive trading out there.
Steps to follow for CFD trading in South Africa
Starting trading in CFDs is not complicated. You have to follow a few simple steps to execute your first trade and get on the trading highway.
Step 1: Determining an exchange
To start a trade, firstly, you would need to select a market to trade-in. There are hundreds and thousands of markets that you can decide from; they include assets like money, crypto, commodities, bonds and the like. While choosing a market, you need to be aware of it and understand it well enough to trade in it. You need to have strong knowledge about market patterns and developments. For beginners, online trading platforms are a gift from heaven as they come with all the free resources to help you choose a market. The digital world has made the whole process a breeze.
Step 2: Decide on purchasing or selling
Like any other trading endeavour, CFD involves buying or selling. However, unlike many different types of trading, you are not purchasing the underlying instruments in real-time. To judge whether you should buy or sell, you need to bring your trading ticket to your respective platform and check out the asset’s current price. If you speculate that the cost of the underlying asset is bound to increase, you have to buy; on the contrary, if you conclude that the price will indeed decline, you should go for the selling option.
Before you choose, you need to understand that the reason you decide to buy or sell is through a well-calculated approach and not a random guess.
Step 3: Deciding your trading dimension
When you have decided on purchasing or selling, the next thing to choose is the size of the CFDs you plan on trading. In trading CFD, you have the ball in your court and decide the size of the investment you want to make. Although you can determine the amount you want to invest in, the platform you trade from can have some minimum amount set. Therefore, to trade from that particular broker, you have to select an amount higher than or equivalent to the least amount set by the brokers.
The minimum varies from asset to asset. Hence it would be best if you kept the price in check. The prices may be low or high depending on how volatile their market is. For example, the cryptos minimum requirements will be higher than the minimum requirements set for trading with a company’s stock.
Step 4: Halting your trade
Many platforms provide the addition of stops or limits to their traders. It will help to keep your profits secure and protect you from grave losses. You need to set a stop and limitations depending on your risk management strategy. Many platforms automatically detect that and stop the trade before the loss goes beyond your initial investment; this can help you from huge losses.
Step 5: Monitoring and sealing the contract
After placing your trade and placing stops and limits on trade, the last step is for the profits to shift along with the market developments. Again, monitor the market and add any transaction keeping the numbers in mind.
Most brokers close your trade when it reaches the stop or the limit. However, if that doesn’t happen automatically, you may have to do it manually. You can do so by clicking the close position from the positions menu, and as soon the position closes, the profit or loss would be evident in your account.
Trends in South Africa
In South Africa, contract-for-difference trading has been booming for the last several years. CFD Trading should see a rise in the coming years too. Due to the short term investments with meagre starting capital from the buyer’s side, it can lead to high profits. Nonetheless, like any other form of trading, it does come with a truckload of risks and gambles.
Owing to the recent development and transition to this trading type, many individuals in the southern African region are interested in learning more and more about it. One method to succeed in this is trial and error, and the other is a cautious strategy and learning about it before diving into it.
The trends in the south African region shifted from the single stock futures, which had hijacked the market for the past score, to CFDs that are on the rise; this is evident from the activity of the Johannesburg stock exchange market.