South Africa is one of the few countries in Africa that has allowed CFD trading. Consequently, CFD trading has become increasingly popular in the Johannesburg Stock Exchange (JSE) surpassing single stock futures. The number of trading platforms has also increased significantly due to the growing number of traders.
Unlike traditional trading, CFD Trading offers unparalleled potential to any who’s familiar with the field. However, there’s also a huge risk that comes with trading CFDs. Thus, traders are usually advised to exercise caution and practice shrewd risk management to avoid losing their capital and profits.
What Are CFDs
Contract for Difference (CFD) is a tradable derivative instrument that mainly involves the speculation of the price movement of a particular asset. The benefit of trading CFDs is traders don’t have to own the underlying assets. Some of the most popular assets that can be traded include stocks, forex, indices, options, futures, and cryptocurrencies among others.
CFD Trading In South Africa
The Financial Services Board (FSB) is the current body that oversees Forex and CFD trading in South Africa. Additionally, most of the brokerage companies operating in the country are also governed by various international bodies. Some of the governing bodies include the UK Financial Conduct Authority (FCA) and the Cyprus Securities and Exchange Commission (CySEC). This makes it very advantageous to South African traders since they are protected by various governing bodies.
Apart from CFDs, single stock futures (SSFs) are also popular in South Africa. However, one of the biggest benefits of trading CFDs is they don’t expire. On the other hand, single stock futures are normally settled in cash. Another benefit for trading contract for difference is a person can trade one CFD in a single contract whereas SSFs require a trader to purchase 100 shares per contract.
Important Features In CFD Trading
One of the things you should be aware of when looking to join a brokerage platform is the amount of fee they charge. Different platforms have varying fees so ensure you compare the ones that you’ve shortlisted as potential platforms.
Apart from fees, you ensure you choose a brokerage that has an intuitive layout. This helps in making trading simple, allowing you to easily focus on executing your strategies. XTB is a good example of such a platform that also offers prompt transactions. Before joining any trading platform, ensure you do thorough research.
CFD trading is considered to be very risky. This is because it allows traders to use leverage when trading. Therefore, it opens the door to gain massive returns. Nevertheless, losses are also magnified. Without proper risk management, a trader can potentially lose all the capital he or she might have set aside for trading.
To avoid such occurrences, it’s important to first learn the important skills required to be a successful trader. It’s a step that not only reduces your losses but also accelerates the learning process. There are a lot of paid, as well as free trading content available online. Both have their merits and demerits.
Free courses are best suited for people who want to learn how to trade but lack enough financial resources to start. The downside to them is the information provided may be limited. Paid courses are usually in-depth and cover a variety of topics. However, some of these courses charge an exorbitant amount while the provided information isn’t sufficient.
In South Africa, taxes are treated as gross income. It’s important to understand the various tax laws before you start trading CFDs. Besides helping you to stay compliant, it’ll also help you to track your finances better.
CFD trading offers numerous benefits to traders. If you want to start your trading journey, be sure to follow the guide provided above.