CFD trading gaining popularity
CFD (contract for difference) trading has risen steadily in popularity among investors. The key driver behind this trend has been the widespread permeation of the Internet as well as other technology, which have both brought information and access to retail investors, a luxury previously only available to professional investors. CFD trading however, would not be as popular as it is today were it not for the inherent benefits offered by the instrument.
For the sophisticated trader, CFDs are a transparent and flexible way to gain exposure in price movements across different asset classes such as equities, indices and forex using one instrument. Market participants have the added opportunity of being able to benefit from rising and falling markets by taking long and short positions with the efficient use of capital in margin trading. Margin trading equates to using a percentage deposit relative to the value of your position. Profits or losses are therefore magnified in trade, increasing both risk and reward possibilities. Sophisticated risk management tools are now commonplace on trading platforms and help to mitigate these risks while maximising opportunity.
Locally, we find the South African CFD market is following in the footsteps of its international peers, with a number of new developments giving the product widespread recognition.
In June, the exchange-traded CFD (eCFD) prototype was launched by the JSE, which should serve to create further understanding and awareness relating to the instrument.
In terms of regulation, CFDs as a subcategory of the over-the-counter (OTC) derivatives will find guidance under the new Financial Markets Act, which is important in aligning local regulation to that of our G20 commitments. The new legislation will revoke the Securities Services Act and provide a regulatory framework for OTC products.
In acknowledgement of the rise in popularity of CFD trading, SA’s annual Top Stockbroker Awards presented by Busi
ness Day Investors Monthly, added a new category to assess the country’s best CFD Provider in 2012. In the report, CFDs were the only derivative product with an exclusive mention.
Following on from its international achievements including the group’s recognition as the largest global CFD provider* by revenue (excluding FX), IG South Africa was pleased to be recognised as SA’s Top CFD provider for the second year running. It has been positive to see international providers like IG acknowledged for their tailored local market offering, which has ultimately led to better value for retail investors, especially in the areas of cost and technology. CFD trading can result in losses that exceed your initial deposit. IG South Africa is an Authorised Financial Services Provider (FSP no. 41393).