You may know the various types of trading systems and markets available out there. However, all these trading activities will include the direct buying and selling of the trading instruments like stocks, commodities, and currencies. CFD trading stands out of these methods in a way that there will not be any direct dealing with the instruments. All you would do is to predict the rise and fall of an instrument and buy a contract with the cfd trading South Africa broker. If the prediction is right, you will get the difference between the prices as profit. Else, the difference will be your loss. This factor is what makes the process of CFD trading attractive. There are several benefits of trading CFDs. In this article, let us discuss some of these benefits in brief.
Benefits of CFD trading
Profits during fall in price
Usually, you will lose your money if the trading instrument on your account loses its value. However, it will not be the same in all cases of CFD trading. Here, you can even make profits when the prices are falling. Al you should have done is going short on that instrument during the creation of the contract. Let us assume that you predict that the price of a commodity is about to fall 10%. So, instead of buying it, you can sell the contract at the predicted price. Once the price falls actually to your price, you can buy the contract now at the lower price. So, you are gaining the difference amount even in the fall of value.
No need for higher capital
Another benefit of investing in CFDs is the option to use the leverage. Leverage will help you hold a position that you cannot afford at the moment. For instance, let us assume that you wish to buy a contract worth $10000 but you have only $2000. So, you can choose the leverage option and still buy the contract by depositing this $2000 as a margin. The contract will work fine and you will get the profits if the results are positive. However, you would have to pay more money if the market goes against you as the losses will be accounted for the entire amount. So, to enjoy the benefit of leverage, you should be conscious.
Range of instruments
In other types of trading, you would have to stick to a particular asset. For instance, a forex trader should trade with currencies only unless he creates a different account for stocks. However, CFD trading allows you to buy and sell the contracts of various trading instruments under one roof. You can buy a CFD of a company’s share and simultaneously can go for a CFD of a currency pair. Similarly, you can access other asset classes like commodities, cryptocurrencies, and stock indices.
Familiarity in practices
People who are experienced in trading with any other financial market will not find anything new in CFD trading apart from few differences. This familiarity is a benefit.