A growing number of South Africans are taking direct control of their financial affairs and investments by using the Internet and a new investment instrument known as spread trading.
Online investment is big business and one of the easiest ways to get started is through spread trading. It`s a relatively new concept in South Africa but it`s a hit with investors because it`s not complicated, it reduces their costs, leverages their capital and maximises their profits. The trend is definitely away from the purchasing of financial assets to the purchasing of international and domestic derivative instruments.
Charles Savage, Marketing Director of Global Trader 247, says when a trader performs a spread trade, the purchaser is exposed to the change in the value of an asset without owning the underlying asset itself - instead the contract that the trader purchases is a contract for difference (CFD).
CFDs reduce the person`s capital investment requirement and, at the same time, increases their potential for profits.
"This type of financial product has traditionally been used between large institutions like banks but now it`s available to individuals," he says.
Investors take a position on whether they think a certain share or commodity will move positively or negatively - they are able to trade shares, various currencies, interest rates, commodities and share indices.
"We bring investment products that are not normally available to direct investors and are, essentially, market makers. We don`t offer advice - we simply provide a facility whereby individuals can try their hand at playing the markets.
"An Standard Bank Trust Account is opened in the client`s name, which also earns interest at negotiated - interest rates when they are not trading.
We provide two prices at which investors can buy or sell our products," says Savage.
Investors can either sign-up on the world-class online execution platform and have their transactions processed there in real time, or make use of the company`s sophisticated call centre. These tools will allow you to leverage a wide range of automated trading functions including stop losses, take profits, orders and market alerts. Added to this, are the free services of live prices, Reuter`s news, charting and real time SMS facilities.
"By taking advantage of all these services, investors can manage their exposure by specifying the contractual stake and by using the risk management mechanisms such as stop-loss and take-profits limits," says Savage. Confirmations of deals are on-screen and through e-mail and SMS.
Savage explains how spread-trading works: "As with all spread trading, you buy at the high (offer) price if you think the market will rise. You sell at the low (bid) price if you believe it will fall. You can close the trade out at any time or let it run to expiry. For the first time investor there`s a GT university and a real time simulated trading environment where would-be traders can test their skills at no risk.
"There are no costs to entering this type of contract. Investors are required to deposit an initial refundable margin that will eventually be set off against their loss or enhanced by their profit and then returned at closure or expiry," he says.
The Global Trader 247 interest rate CFD allows traders to hedge interest rate exposure, fix mortgage rates or speculate on interest rate volatility over various maturities, which occur during normal economic cycles. The product enables clients to profit from taking a view on interest rates and in so doing hedge their mortgage payments.
Spread trading has several important advantages. There is no stamp duty, marketable securities tax (MST) or storage fees. When you buy shares, you are charged stamp duty, MST and storage fees every time you invest. With spread trading you are not buying the actual shares, so you do not have to pay these costs.
There are no brokerage fees either. Global Trader 247 makes its money from the bid/offer spread and from being able to operate efficiently. Investors only have to place margin for a proportion of the value of an asset, but get exposure to the full price movement of an asset and the ability to go long and short in any of their instruments.
Says Savage: "Spread trading is a growing investment phenomenon worldwide. It`s easy, exciting and can be hugely profitable. Ultimately, it lets investors get involved in the markets directly for the first time."
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