CFD trading stands for ‘closed-end deposit financing. This type of financial product involves borrowing a financial instrument, paying a margin (which is a fee paid to the provider regularly), and receiving a ‘call’ (to buy the underlying security at a pre-determined price). If you choose to invest in CFDs, then your margin will be ‘given to you by the financial institution that you are using.
The provider will pay you a lump sum for purchasing the underlying asset in exchange for your margin. You need to understand that when you purchase an asset and give a financial institution a lump sum as a margin payment, the financial institution is giving you credit, and not the asset itself.
cfd trading South Africa can be broadly classified into two main categories: those that involve buying and those that involve selling. Essentially, these two strategies are designed to give you a basic profit and trading solution. You can decide to trade long or short and either offset your losses with profits or use them to exploit opportunities.
Several factors can affect the current market price of financial instruments. Economic and political developments, news-ups of companies that may make newsworthy announcements, and changes in tax liabilities are just a few examples.
Long positions generally involve positions that are bought at their current market price and held until the end of the CFD trading day. These are known as ‘open’ positions because the trader fully owns the shares at the end of the day.
However, this also means that the trader will lose any leverage that he or she has gained during the day. CFD strategies that involve using leverage will be different from traditional strategies in this respect. To take advantage of leverage, CFD trading strategies use both short and long positions.
CFD trading strategies differ from traditional strategies in terms of the nature of the trades they make. Some CFD trading CFD strategies are long-term instruments, meaning they are traded over a long period. These strategies are known as ‘put’ and ‘call’ strategies respectively. Other CFD trading strategies are short-term in nature, i.e. they are only traded during specific times within a trading day.
Both ‘long positions’ and ‘short positions’ can incur losses. The amount of the loss incurred can differ greatly depending on the magnitude of the initial CFD investment and the risk aversion of the trader. CFD trading strategies that are leveraged will inevitably incur large losses over time. The larger the position, or leverage, of the trader, the larger the potential losses could become.
CFD trading involves the purchase of Contracts for Difference (CFDs), which represent contract values, at a time when they are bought. When these contracts are ultimately sold, they represent a different value than the original price paid for them.
If these contracts were never purchased in the first place, they would have no value and there would be no profit for the trader. Therefore, to achieve a profit with CFD trading, traders must always buy and sell CFDs on the open market. However, even with this feature, many traders prefer to pay a broker to place their trades for them using a combination of CFD trading strategies.