What are CFD’s?2018-10-08T17:24:45+00:00

CFD Definition

A CFD or Contract for difference is derivative financial instrument that provides traders and or investors with an opportunity to trade the underlying price movement of various financial assets and trading products. A CFD is an agreement between a ‘buyer’ and a ‘seller’ to exchange the difference between the current price of the underlying asset (Currencies, indices, commodities, etc.) and its price when the position or contract is closed.

CFD’s are leveraged derivative financial products. A trader or an investor is required to put down a small margin (Deposit) of the total value of the trade. They allow traders and investors to take advantage of prices moving up by opening a long position or by taking a short position when the prices move down or lower.

At Sandton Capital Markets CFD’s track the price movement of the world’s best known and highly liquid financial assets and trading products. CFD’s can be much more flexible and accessible trading and investment tools than ownership of the underlying financial asset. CFD’s present several advantages, such as low cost, trading with leverage, market diversification and the ability to hedge positions compared to trading the underlying asset directly.

The CFD contract does not imply physical ownership or purchase/sale of the underlying a currency pair, equity Index or a Commodity which enables traders and investors to avoid the registration of the ownership rights for the assets and the associated transaction costs. The CFD contract provides an opportunity for trading the underlying market price of the asset without the actual ownership.

CFD trading

CFD’s (Contracts for Difference) offer leveraged long or short trading on wide variety of financial assets and products. It is an inexpensive trading option to trade the price and movement (Changes in price) of the underlying asset in large variety of world leading financial products including Currencies, Equity Indices, and Commodities. Contracts for Difference are universal trading instruments, which has gained much popularity in the past decade. With the help of CFD’s, it has become possible to trade on the price movements of various financial assets and instruments, without the need to possess them directly.

Sandton Capital Markets offers a wide range of CFD’s providing our clients access to the underlying price exposure for various global commodity markets such as WTI Oil (US) or Brent Oil (UK), Precious Metals such as Gold or Silver – and world leading equity indices – such as the German DAX 30, South Africa’s JSE Top 40, UK’s FTSE 100, the Dow Jones 30, and the NASDAQ-100 from the U.S and many more including large selection of currency pairs.

Advantages of trading CFD’s:

  1. Product diversity
    Sandton Capital Markets offers clients CFD trading on the wide variety of the world’s leading equity indices and currency pairs as well as extensive array of commodities. Such a diverse array of trading products allows clients to easily gain exposure to the price movement of the underlying well known and liquid world leading financial assets and products.
  2. Margin Trading (Leverage)
    Margin trading allows taking a larger position in volume of a CFD by presenting small sum of the invested capital. When the market moves according to traders expected direction the profit increases substantially by the provided leverage, since the trader had deposited only a portion of the total contract value, but the profit will be made from the change of the total value. Conversely, in margin trading losses may also increase significantly in case the market moves against a trader expected direction. That is why it is critically important to be careful when trading with leverage accounts: risk management is crucially important. Margin trading and leveraged derivatives financial products are not suitable for all clients and carry significant risk of loss to some or all the invested capital.
  3. High Liquidity:
    All Sandton Capital Markets CFD’s offer competitive spreads with bid/ask quotes that are executable in highly efficient manner.
  4. Clients can execute odd (small) lot size orders:
    CFD trading enables clients to trade much smaller increments (odd size lots).   Normally, this is not possible when dealing with the underlying asset itself.
  5. Trading on both Rising and Falling Markets
    CFD is a flexible investment instrument. When a trader believes an index will move higher in price he or she can make a profit by buying the CFD which is known as going long. A trader can also speculate on falling prices of a stock index by selling a CFD, known as going short.
  6. Hedging
    If a trader or an investor believes that an a currency pair, an equity index, a Stock/Share, a commodity they own are going to fall or rise in price but still want to hold on to the open position, they can use the hedging strategy to protect their holdings (Portfolio) from by opening a inverse position in their portfolio. The hedging ability can provide a trader or an investor (Account holder) a much more effective way to reduce transaction costs compared to hedging by selling the actual physical financial asset
  7. Day Trading
    Day trading is defined as the process of buying and selling various liquid financial assets and products within the same trading day. This means that a trader or an investor is free to make as many trading transactions as he or she would like within a single day. As leveraged trading enables opening bigger positions with limited deposit amount, trading CFD is possible even in cases of slight fluctuations of the asset value during a trading day.