CFD trad­ing gain­ing pop­u­lar­ity

Finweek English Edition - - TECHNOLOGY - Shaun Muri­son is a trader at IG South Africa

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.

REG­U­LA­TION

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.

RECOG­NI­TION

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).

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