DINEO TSAMELA: And now for the risks and rewards of contracts for difference
Over the past few weeks, in an effort to assist you on your trading journey and help you to avoid scams, we've been looking at forex trading. This week we turn our attention to another trading instrument: contracts for difference. CFDs are contracts of agreement between a buyer and a seller. Traders can take advantage of the movement of underlying assets without owning the actual shares. For instance, if traders think that a particular share price is going to go up, they can take a long position and make a profit off the movement of the underlying asset. In effect, the trader is borrowing stock from the broker in order to take a position. The broker supplies the underlying asset - and in return will claim commission in the form of fees. The cost of trading CFDs is lower than the cost of buying a share. Compare costs across brokers to get the best deal. Typical costs will include brokerage, tax and statutory fees such as for Strate - which owns the technology to safely keep equities,...
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