subject: Buying CFDs in Your SMSF [print this page] Buying a CFD can be a rather profitable decision which can greatly increase your investment, however, if it were that simple, everyone would invest in a CFD. In most cases, only experienced investors choose to go with a CFD because losses can occur that are much greater than what is initially invested. For more information on a CFD, read along below.
What is a CFD?
A CFD is offered by many different investors and come in many forms such as stock market indices, share prices, foreign currencies and any other types of tools that can be traded within the realm of investment trading.
The desirability of these investments comes from the fact that you do no have to just choose investment winners which will rise, but you can also pick 'shorts'. A short is to choose a trading option where the price of the investment will drop rather than rise
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Therefore, you can bet on a stock dropping rather than rising to make yourself a profit for your SMSF. The risky part, however, is that it's possible the price will rise. If this is the case, you will have to pay the new difference, which is why you can end up losing much more than you initially invested.
Protect Your Investment
There are ways to protect yourself from wasting away your SMSF when you have your heart set on buying a CFD. You can engage in a 'stop loss' contract which will prevent you from creating major dents in your retirement fund, but there are fees associated with this.
You should be aware that SMSFs do not require advisors to use these resources, so make sure that they are offered to you and that you take advantage of them for that extra peace of mind. You do not want to waste hard-earned money that has been built up over the years with a few bad investment choices.
If There are Risks, Why do People Buy Them?
A logical question is 'why would one want to invest in a CFD if there is such a great potential loss involved?' While there are risks associated with most investments, one reason as to why a CFD is desirable is because they can protect your portfolio.
When the stock market goes down, your CFD will rise and this will help to offset losses. You can also delay taxes to a different financial year because a CFD permits you to set a sale price without finishing the sale.
The obvious reason to invest in a CFD is that if you are experienced and can confidently predict the market, there can be considerable financial gains for you in the long run.
Buying CFDs in Your SMSF
By: juliasmith
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