When investing in the market of property, many people hesitate before jumping into it because of the amount of required initial capital. Still, investing in properties should not be limited to acquiring physical properties. As a matter of fact, there are lots of ways that you can have a foothold of this profitable type of asset without having to acquire thousands of dollars. It is by CFD or contract for difference trading. It is an alternative way for you to grow your wealth.
Aside from using traditional ways like buying a property and then selling it after a few years, there are still more methods of investing that are capital-efficient. You can use CFD products to upsurge leverage for capitalizing in the sector of properties.
CFD is a contract between two groups to exchange the difference on the opening and closing price of the agreement. In CFDs, you don’t really own the asset you are trading, it is just a derived product with worth based on the underlying asset.
Advantages of CFD Trading
You can make use of CFD to trade on price actions of thousands of markets disregarding the rising or falling of the price. This gives advantage to CFD traders on going both short or long term, based on their view of the market.
CFD trading, being flexible to either go short or long based on the market perspective is a lot different from shares investment, wherein you can only initiate a trade by buying, or you are required to close out your position within the day to avoid incurring fines. Another benefit in CFD trading is the margin, which allows you to maximize your exposure for a small amount of investment you would basically need to start trading the assets directly. Leverage is obviously very useful that it can boost your returns. Make sure to use proper techniques on risk management when CFD trading.
Obviously, leverage is a double-edged sword since it can amplify your returns or losses accordingly, so ensure you employ proper risk management techniques when trading CFDs.
Hedging an Open Position
As stated, the main advantage of CFD is that it will let you bet on whichever direction, allowing you to be flexible in buying or selling the investment according to your market view. It is a useful instrument to hedge your market exposure.
Hedging For Physical Property Holdings
Hedging means to lessen the risk of adverse movements of price. Basically, a hedge is composed of taking a position of an offset in a linked security.
For example, you acquired a condominium in 2012 and are now getting some income from it through rent. Your primary plan was to sell it in 5 years, but the execution of the cooling measures in 2014 interrupted your plans since the prices of property went the other way.
While you can choose to sell your property now at a break-even point, you still grasp a positive perspective for your property’s future and anticipate the prices to bounce back. For you to hedge your risk, you can offset your position in the market of REITs to constartint some of the exposure. This may not be a perfect hedge, but it will help you lessen the probable losses in the short term.