Due to the widespread coronavirus, we have been observing restrictions implemented all over the world. These restrictions have made people constrained to their homes, and most of them are unemployed. South Africa is one of the most affected regions by a coronavirus, making online ways to make money popular. This article will cover CFD trading South Africa and all you need to know about it.
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CFD trading South Africa – what is it?
CFD means the contract for difference. CFD trading is a contract between two parties. The parties involved in a CFD trade agree to pay the difference between the opening and closing price of the stock they are trading. It is a type of futures trading where the parties speculate and estimate the asset’s price movement. Neither of the parties owns the asset in CFD trading.
The same is the case when you do CFD trading South Africa with a broker. You estimate the price of the asset whether it’d decrease or increase.
Difference between CFD and Stock
Stock trading has always been very popular in South Africa, so we thought about presenting a little comparison for our readers.
The biggest difference between CFD trading and Stock trading is the ownership of the assets. In stock trading, when you estimate the price of the stocks, you have ownership of them. In CFD, when you are estimating the price of assets, you don’t own the assets.
In CFD trading, you only need to invest the margin of what you trade. You can invest little and trade more than that. It means that your profits can exceed your deposits by a large number. You can also lose a lot of money, suffering huge losses exceeding your investment. In stock trading, you must pay the price of stocks you are trading with upfront. This ensures that you don’t lose more than you invest.
CFD trading is also open 24/7. On the other hand, you have to wait until the related stock market opens to start trading in stocks.
Applications of CFD trading
When you are CFD trading South Africa, you will not hold any CFD position overnight, and you will place a high number of CFD trades in one day.
In CFD trading, you can maximize your interests by investing in volatile markets. In South Africa, CFD trading with bitcoin, oil, forex is very popular.
Benefits of CFD trading
CFD trading South Africa is growing because of some of the good advantages that it holds.
CFD trading has very high leverage numbers than traditional trading markets. You can get rates as low as 2 percent on some assets. Volatile cryptocurrencies will require 20% margin rates on average.
CFD trading is accessible to everyone. Traders can access the market and trading platforms from anywhere around the world at any time of the day. This is the most attractive feature for everyone who is thinking about CFD trading in South Africa.
In CFD trading, you have to pay the minimum cost of the trade. Brokers in CFD trading charge very low prices.
CFD trading markets do not require high amounts of initial investments. The more money a person invests, can get their chances of making higher profits bumped up by a lot. New traders can set up their CFD trading setups with as little as 1000 dollars.
Risks of CFD trading
With all the benefits of CFD trading, there have to be some risks that our readers should consider when doing CFD trading.
Lack of regulation
The CFD market and brokers are not entirely regulated. The lack of regulation of CFD trading in South Africa means that you don’t have the safety of the net of authorities ensuring the safety of your funds. CFD market doesn’t fall under the jurisdiction of South Africa’s local law and finance authorities. The traders are more prone to being scammed.
Downsides of trading on a margin
When you trade in a margin, you have more chances of making a higher profit. Trading on a margin also increases the risk of losing more money on your trading. If the market shifts against the trader’s estimate, it can cost you a lot of money than you initially invested. Losses can over exceed deposits. Traders must have a very high understanding and awareness of the market trends.
Getting starting with CFD trading
Here is a small guide to get you started with CFD trading,
Choosing a market
There are thousands of markets that you can trade-in. You should pick a market which you are interested in. You should have high knowledge of the market that you chose. You need to stay in touch with platforms to stay updated about the shifts in market trends.
Buying or selling
Buying benefits in the long term and selling benefits in the short term, if you believe that the market will increase on your underlying asset, then you should buy. If the market is likely to decrease, then you should sell.
Stop and limit
This feature of CFD trading will help you minimize losses and guarantee profits. If you put a loss limit to the value of your asset, then the market will sell the assets you are trading with. On the other hand, if you add a stop-limit, then it will sell your assets once their value crosses a certain value that you set.
After setting up limits, you should be efficient and active about losing trades. Once your asset has gotten to the desired value, you can select the “close position” option.
We can not stress enough the importance of demo accounts in CFD trading. Demo accounts help new traders to understand the market shifts and learn the price shifts in the value of their assets. It would help if you learned CFD market trends by signing up with your broker for a demo account.
CFD trading South Africa is a very high risk, high reward type of market. We do not suggest you trading in CFD if you don’t have very good market knowledge. It would help if you only traded with the spare money that you have. Otherwise, you will end up losing more than you have. So, spend a lot of time learning and understanding CFD trading before you invest in it.