Benefits of using CFDs for trading in Mena

Investors looking for more flexibility, options, and better returns on their trading can opt to trade in CFDs (Contract For Difference).

The contracts are derivative financial products that allow you to reap the benefits of an underlying asset’s performance without actually owning the asset.

The basic idea behind investing in CFDs is that people can make profits or losses during market fluctuation, just like traders who buy and sell stocks/shares.

However, unlike equities, investors do not have to own the shares or commodities or even deposit cash into their account before placing a bet.

With CFDs, what you do is leverage your customer margin against the broker’s balance sheet so that they carry out all trades on your behalf.

It means you don’t even have to pay for the total value of the asset you are investing in, but instead, just a fraction known as “margin”.

So why are investors turning towards this particular type of investment?

Let’s look at some of the benefits offered by CFDs for Mena investors.

Portfolio benefits

Investors’ portfolios consist of both physical assets, such as real estate and stocks, together with financial assets, including equities, bonds, money market instruments etc.

Through CFDs, an investor can create short positions on any asset in his portfolio without actually owning/transferring it.

CFDs (despite their name) don’t require ownership; they only require that the client makes good on the difference between opening and closing prices.

Financial risk mitigation

With most investments, if you lock in your capital today, you would hope to make returns from price increases.

But if the market goes down, you can find that your capital has been locked into a product that is now worth less than it was when you purchased it.

It is often referred to as gearing risk and means that any losses accrued over some time will have a magnified effect on your portfolio.

CFDs, however, allow investors to use leverage without limiting their downside exposure.

I.e. If an investor holds ten contracts with options to sell at $10 each, he could lose or gain ten times his account value if the market moves against them by just 1%.

Whereas in traditional trading strategies where there are no longs or shorts, x1 movement would result in x1 loss for the trader.