In recent years, CFD trading in Africa has experienced an upsurge in popularity. A CFD, or contract for difference, enables traders to profit from the price changes of an asset without owning it, making it a unique type of trading instrument.
This burgeoning popularity isn’t expected to abate any time soon – rather, many commentators believe it will grow, with an increasing number taking up investing. If you want to be among them, here’s what you need to know.
Use a demo account to get a feel for trading
CFDs are a great option for those with limited capital looking to make a short-term investment. Unlike other instruments, you don’t need to own the underlying asset, which means you can purchase a contract for difference for almost anything.
For example, you might be interested in index trading. Indices are a way of trading on the world’s biggest stock markets, with lots of movement up and down. By purchasing a contract for difference, you can profit from both increases and decreases.
But how do you get a feel for how this works? If you want to get to grips with the markets before you put capital on the line, we recommend opening a demo account. This is essentially a simulation, allowing you to test your strategies in a realistic setting without any risk of losing money if you miscalculate. Practice makes perfect, so use this handy tool to get a feel for what you’re doing.
Do your homework
A demo account is a great way to get to grips with how it works, but if you really want to up your chances of doing well, you'll do plenty of research besides. There are some fantastic resources out there, with sites like Investopedia proving invaluable. There is also a slew of great books on the subject, as well as plenty of handy tutorials and channels on YouTube. The more you can read, watch, and learn, the better you will do.
Choose your platform carefully
One area where a lot of people fall short is choosing the wrong platform. There are two primary options open to you: MT4 and MT5. While there’s nothing inherently wrong with either of these, they suit people to varying degrees, so make sure you understand the differences between them.
MT4 is the older of the two, but a lot of traders still prefer it. It tends to be familiar, easy to use, and simple to navigate. MT5, on the other hand, is more high-tech and offers access to a wider range of assets. The better platform for you will be down to personal preference.
Learn how to manage risk
Finally, and perhaps most importantly, learn how to manage risk before you start trading. As much as the markets pose some fantastic opportunities, there’s an element of risk attached to trades too. Luckily, there are lots of ways you can minimize this.
These include:
- Using leverage wisely. While leverage can be a great tool for increasing profits, it can also exaggerate losses. Learn how to use it wisely and don’t be tempted to go over the top re. the size of your position.
- Using risk mitigation tools. It’s a good idea to take advantage of risk mitigation tools like stop-loss orders as well. These will prevent your losses from exceeding a certain amount and can be set at whatever level you feel comfortable with.
- Diversifying your portfolio. A well-diversified portfolio is less reliant on the performance of a single asset and better able to weather market fluctuations.