You cannot build your wealth by simply doing your work or business forever. If you wish to grow your wealth in the long term, you should know to invest your money in the right market. There will be several options to do so and cfd trading South Africa is a popular way to do so. In this trading method, you can trade with a range of instruments from stocks to cryptocurrencies. The instrument does not matter as you are not going to buy it for real. Instead, you and the broker will play the numbers game in the form of a contract. For instance, if you predict that the price of a stock will increase by 10% in one month, you can create a contract with a broker for the same. At the end of one month, the difference between the price at present and a month ago will be your profit or loss. If the price has reached the 10% increase and whatever above it, you are in the profit zone. If the movement is negative, you owe the broker the loss amount. The following are some of the reasons to put your money in CFD trading.

Reasons to put your money into CFD trading

Range of options

If you are about to buy CFD contracts, you will deal with all the financial instruments at once. You can choose a stock or a forex currency pair for your investment. In all other financial markets, you can only buy and sell a particular type of instrument. So, you can have the luxury of investing and trading in various financial markets with a single broker.

Leverage

Let us assume that you have only $1000 in your account and you wish to go for a contract worth $6000. Your broker will allow you to buy the contract by depositing $1000 as a deposit or margin. However, you will be responsible for both profits and losses. So, there is no high capital requirement.

Hedging

If you are investing in stocks and are worrying about possible losses, you can hedge the losses by buying an alternate stock that foreshadows profits. However, as the stock market is unpredictable, you can hedge using CFDs. For instance, let us assume that you hold a hundred stocks of an X company and you have doubts of the price falling by 10% in a rare case. Instead of selling the stocks with fear, you can go short for the same hundred stocks using CFDs for a 10% loss. Hence, even if you lose 10% in the stock market, you can gain with your CFDs. Now, if the price falls as expected, you can convert the CFDs to stocks again by closing the position. Hence, there is no overall loss.

Reduced tax

You will never have to pay taxes or should pay only a reduced tax if you invest and trade only on CFDs. The taxation will be huge and impactful only in direct trading with instruments like stocks, currencies, and commodities.