Wherever you look online these days you’ll see adverts for trading. Whether its trading between currencies, commodities, or even crypto, it’s an exciting, but also risky, venture for someone who is wanting to do something different with their money.
CFD trading, or Contracts for Difference, is a popular investment instrument that allows traders to speculate on the price movements of various financial instruments, including stocks, commodities, indices, and currencies. CFDs offer a flexible and accessible way to trade financial markets, allowing traders to take advantage of both rising and falling prices. However, CFD trading is not without its risks and it is important for traders to understand both the advantages and disadvantages of this form of investment.
In this article we will look at some of the Pros and Cons of trading with CFDs.
Pros of CFD Trading:
Accessibility: CFD trading is a highly accessible form of investment, as it requires relatively low capital compared to traditional stock trading. CFD brokers usually allow traders to trade with leverage, meaning that traders can access larger positions with smaller amounts of capital. This makes CFD trading a popular choice for novice traders, as well as experienced traders who are looking for a flexible way to trade the financial markets.
Flexibility: CFD trading offers a great deal of flexibility, as traders can trade a wide range of financial instruments, including stocks, commodities, currencies, and indices. This means that traders can take advantage of market opportunities across multiple asset classes and can diversify their portfolios to manage risk.
Speed of Execution: CFD trading is a fast-paced investment instrument, with trades executed in real-time. This allows traders to take advantage of short-term market movements, and respond quickly to market events and news releases.
Short Selling: CFD trading allows traders to short sell financial instruments, meaning that traders can make a profit from falling prices. This is a valuable tool for traders who believe that the market will fall and want to take advantage of this.
Diversification: CFD trading offers a great way to diversify a portfolio and spread risk. By trading multiple instruments, traders can take advantage of different market conditions, and reduce the impact of any single market event on their portfolio.
Cons of CFD Trading:
High Risk: CFD trading is a high-risk investment instrument, as traders are exposed to significant losses if the market moves against them. Leverage magnifies both profits and losses, so traders need to be careful when using leverage, and ensure that they have adequate risk management strategies in place.
Complexity: CFD trading can be a complex form of investment, as traders need to understand the mechanics of the instrument, as well as the markets they are trading. This means that novice traders may struggle with the complexities of CFD trading, and may be exposed to significant losses if they do not have a good understanding of the markets.
Overnight Financing Costs: CFD trading often involves overnight financing costs, which are charged to traders when they hold positions overnight. These costs can add up over time, and can significantly reduce the profits of traders who hold positions for extended periods.
Slippage: CFD trading can be impacted by slippage, which is the difference between the expected price of a trade and the actual price that is executed. This can result in significant losses for traders, especially in fast-moving markets, where prices can change rapidly.
Dependence on Brokers: CFD trading relies on the services of a broker, and traders are dependent on the reliability and stability of their broker. Traders need to be careful when choosing a broker, as there are many unscrupulous brokers who offer poor service, charge high fees, or manipulate prices.
How do you choose the right broker?
Choosing the right broker can either make or break your trading experience. As a trader you can lower your risk and improve your experience by partnering with a reputable broker.
Firstly, make sure your broker is registered with the relevant authorities. We recommend CAPEX.com. It is registered in multiple regions, including South Africa. CAPEX.com is registered with the Financial Sector Conduct Authority, so you know you’re working with someone that not only has credibility, but the confidence of the regulatory authority.
Secondly, check to see if your broker has a local presence in your country. Many brokers advertise here in South Africa but are registered in countries with very loose regulatory oversight. As a consumer you have no rights or recourse should something go wrong. This is a big red flag.
CAPEX.com has a satellite office based in Johannesburg. You know that long-term they’re committed to their clients here as they’re prepared to invest in the infrastructure and support for locals.
Finally, make sure the broker you choose provides you with training and support without massive upfront fees. There are a lot of brokers who can easily charge up to R15 000 for training to use their platform, knowing that they’ll make money from you before you’ve even made your first trade. Surely this should be something free? You’re going to be using their systems and be paying them transaction fees while trading. Why charge an upfront fee?
CAPEX.com offers all their users’ free access to their Trading Academy where you can learn how to trade as well as how to use their platform.
We strongly recommend that anyone who is serious about trading in a safe and regulated environment to look at CAPEX.com. With an exemplary service history (see HelloPeter and TrustPilot reviews) you know that you’re in safe hands.
Anyone who is interested in CFD trading can visit their website, https://capex.com/za and open up a free demo-account. Everyone visiting the website also gets free access to the CAPEX Academy which will teach users how to use the platform and how to trade. Click here to access the free CAPEX Academy.
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About CAPEX.com
CAPEX.com is a leading global trading platform providing its users with expert insights, tools, and resources to make markets accessible to a worldwide audience and offering a tailor-made trading experience. Its professional trading platforms, robust technological infrastructure, and transparent trading conditions have propelled it as one of the most respectable brokers on the international stage.
Anchored by a global presence and regional expertise, CAPEX.com holds operating licenses from Cyprus Securities and Exchange Commission, Abu Dhabi Global Market Financial Services Regulatory Authority, the Financial Services Authority (FSA) in Seychelles, and the Financial Sector Conduct Authority in South Africa. Visit www.capex.com and follow us on Twitter, LinkedIn, Facebook, and Instagram for more details and insights.
CAPEX.COM/ZA is operated under license in South Africa by JME Financial Services (Pty) Ltd, an authorised Financial Services Provider and regulated by the FSCA FSP number 37166.
Trading leveraged products involve a significant risk of loss.
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