Content provided by APO Group. CNBC Africa provides content from APO Group as a service to its readers and does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by APO Group.
Over the past 10 years, Contracts for Difference (CFD) trading has grown in popularity in Africa and this trend is expected to increase through 2021 and beyond. CFD trading is a good way to make short term investments with low initial capital, however, it doesn’t come without risks. As such, it is crucial for traders to ensure they understand how CFDs work in order to be successful.
This is according to Dany Mawas, Regional Director at INFINOX, an award winning FX and CFD broker, who says that CFDs are an attractive investment opportunity and there are ways for people to start trading cautiously. “For example, auto copy trading can be done on apps such as IX Social, which means that beginner traders can copy the trades of successful traders in order to achieve the same returns.”
CFDs allow traders to make a profit on the price change of an asset without having to own it, explains Mawas. “As such, the trader doesn’t need to buy a particular stock or commodity to make a profit in the future. Instead, the contract between a buyer and a seller provides traders with the ability to trade on margin without owning an asset outright.”
Mawas outlines some tips for those that wish to learn and place trades based on their own strategies:
Start out using a demo account: A demo account is essentially a simulation account which provides users with the opportunity to practice placing trades and become accustomed to the effects of what happens when the market moves. In order for this to be as realistic as possible, it is advisable to keep demo trades within the amount that you would place on a real trade.
Do your research: Learn the types of financial instruments you can trade, understand the trading terminology when it comes to CFDs and know what leverage and stop orders are to manage your risk.
Understand the platforms: MT4 and MT5, for example, are the leading industry platforms and the choice of the majority of retail traders. MT4 allows you to access the entire Forex market, some CFDs and futures trading too, as well as providing a range of tools to aid and develop your tracking knowledge. MT5 is the latest addition from MetaQuotes which allows you to access more assets and introduces you to a range of institutional tools. Trades can also be placed on apps such as IX Social which also offers the element of community based learning.
Use leverage wisely: Leverage allows traders to put down a fraction of the full value of the trade. This way traders can take advantage of the market’s movements whilst using smaller amounts of capital. However, traders can also face risk when using leverage and losses can be increased. As such, it is important to have a cautiously leveraged portfolio.
Consider risk management: It’s recommended that traders use risk mitigation tools such as stop loss orders when trading with leverage. Once you know the correct way to set stops, record, and review your thought processes and trading results, you are better placed to succeed in trading.
Don’t put your eggs in one basket: It's important to have a well-diversified portfolio to take advantage of any market condition. Those looking to diversify their portfolios can start by investing in asset classes that have low or negative correlations so that if one trade falls the other can potentially counteract it. Furthermore, ETFs and mutual funds are easy ways to select asset classes that will diversify your portfolio.
Choose a reliable CFD broker: Ensure the broker you use is regulated. Brokers are required to register with a regulator in the countries they operate. Examples of respected regulatory bodies include South Africa’s Financial Sector Conduct Authority (FSCA) or the United Kingdom’s Financial Conduct Authority (FCA).
It is also important that it’s easy to contact your broker and that they have a physical presence in your country so that you can access any form of assistance that you may need.
“Trading CFDs offer the opportunity to make additional money, however it is vital that those wishing to trade ensure that they are safeguarded in all aspects in order to be successful,” concludes Mawas.
Distributed by APO Group on behalf of INFINOX Capital.
Contact details on behalf of INFINOX:
Tel: +2721 023 0440
Cell: +2778 792 3281
INFINOX is an award-winning and market leading online trading platform.
Founded in 2009, with the vision of delivering a customer-focused trading experience, INFINOX has been offering its clients premium service in a range of asset classes. We empower investors and help them gain access to markets so they can trade forex, stocks, indices, commodities, and futures; using our fast, efficient and reliable trading technology.
We are committed to providing our clients with outstanding service, and offer a dedicated multi-lingual support team that’s available 24 hours a day 5 days a week. Whether you’re a beginner or experienced trader, INFINOX provides the relevant tools to help you get started and improve your trading strategies. We offer instant funding options and the ability to withdraw your money swiftly.
INFINOX Capital Ltd SA is an authorized Financial Services Provider and is regulated by the Financial Services Conduct Authority under FSP No 50506 (INFINOX Capital Ltd SA acts as an intermediary for INFINOX Capital, which is Authorised and Regulated by the Securities Commission of the Bahamas).
INFINOX Capital is a registered trading name of IX Capital Group Limited, authorised and regulated by the Securities Commission of The Bahamas (‘the SCB’) under Registration Number SIA F-188.
INFINOX Limited is authorised and regulated as an Investment Dealer by the Financial Services Commission (FSC) of Mauritius under License Number GB20025832.
INFINOX is a trademark belonging to INFINOX Capital Ltd, a registered company in the United Kingdom under company number 06854853. INFINOX Capital Ltd is authorised and regulated by the Financial Conduct Authority under Registration Number 501057.