Why trade CFDs?

Lower costs:
Trade underlying JSE listed securities through CFDs beginning at 0.35% brokerage and depending on the value traded can be lower.

Leverage:
CFDs are a margined product. You only deposit a fraction of the overall value of the trade, allowing you to make a much larger potential investment than if you were buying the stock.

The amount of margin required to trade the Top 40 JSE listed shares is roughly 10% of the value of the transaction.
If a margin of 10% is required, shares to the value of R1 000 000 can be purchased with R100 000. This means that with required margin at 10% you can trade 10 times more shares (10 times gearing) with the same amount of money compared to trading the underlying equities on the exchange.
A gearing of 10 times means that any change in the underlying share price is magnified by 10 times in the value of the CFD.
This characteristic of gearing or leverage makes trading CFDs much riskier compared to trading shares directly on the exchange.

Direct Market Access (DMA):
You can trade CFDs from the comfort of your own home or office on your PC or laptop. There is no need to call your broker when you want to trade so you can manage your own trade. You can check the balance of your account and the value of your portfolio at any time.

Using the DMA system allows you to get live quotes as seen on the JSE.

Use of CFDs:
CFDs can be used to go “long” or “short” the market.
Long: buying shares in anticipation of the share price going up.
Short: selling shares that you do not own in anticipation of the share price falling.

Therefore CFDs can be used as a hedge against positions in a portfolio, for pair trading and speculation in share price directions.