Forex provides numerous ways to make money, which include trading in currency pairs, indices and precious metals. One popular tool is a contract for difference. The CFD is based on an underlying asset. These can be stocks, indices, and other stock products. CFD trading in South Africa lets a trader make money on price fluctuations, speculating on its increase or falling.
To trade on the stock or commodity market in South Africa and any other country, you need a fair amount of capital (after all, blocks of shares and consignments, even minimal ones, are pretty expensive). Moreover, it is necessary to understand not only the trading mechanism for success in these markets but also the economic processes under the influence of which prices change. To trade stocks, you need to know at least something about the issuing companies and their business areas; to trade goods, you need to get insight into the agricultural and industrial raw materials or energy markets.
CFD appeared in England in the early 90s to avoid paying stamp duty. Since this method of concluding transactions does not imply ownership of shares, the contracts for difference were not taxed. Hedge funds began to use this tool first, a little later it became available for retail traders. Then the trade involved only the purchase and sale of stock price differences.
Before the advent of CFDs, only participants with large capital could trade on instruments of international trade exchange, since the cost of entering into a transaction on exchanges was estimated at hundreds of thousands of dollars. Stock CFDs opened access to trading on exchange-traded instruments to a wide range of individuals with completely different levels of capital. To conclude such contracts, it is enough to have reserves: $2,000 on the account. Today, brokers offer CFDs for almost all commodities.
CFD is one of the most effective and convenient mechanisms for speculating on rates of stock prices, futures, commodities and various stock indexes. To be completely objective, it should be noted that hedge funds are also actively using the CFD market in their interests. A similar trading tool near you lets you earn money without having to buy certain trading instruments, such as stocks or commodities, indices or futures. CFD trading online is supposedly the acquisition of one of these assets using credit funds.
Trading CFDs is very popular. This tool has several pros:
- CFD is an excellent tool not only for the long-term but also for short-term investments;
- you can trade with a low deposit;
- low requirements for start-up capital — it is enough to have a nominal fee to trade contracts for difference;
- you can earn on different assets: stocks, precious metals, indices;
- a huge selection of commodities — the principle of CFD opens access to the shares of the world’s largest brands.
It is important to remember: CFDs on shares are not traded on the exchange market; this is only a reflection of the agreements between the buyer and seller, which are traded on the OTC market. Thus, traders work bypassing commissions and exchange rules, Forex signals. CFDs make it easy to conclude deals to price improvement or decline, regardless of all possible exchange directions. The broker acts here as an intermediary.
As you know, stockholders receive dividends as a profit. In the case of CFDs, various stocks are replaced by dividend adjustment. It should be noted that when buying a CFD, the amount of money will increase due to such an equivalent of dividends and decrease when selling. Dividend adjustment indicators fully coincide with the size of the real dividend per share, which is why CFD traders can consider themselves real investors.