Q. “I’m looking to start trading CFDs this year now that 2024 is fresh, but I want to find the right broker first. What questions should I ask a broker before I trade with them?”
A. I have 10 important questions you need to ask any broker before you start trading CFDs with them.
Q1. What variety of local and international trading markets do you offer?
Q2. What trading derivatives will I trade with; CFDs, Spreads or Futures?
Q3. What is the minimum amount of money I need to deposit to start trading?
Q4. What trading platforms do you offer us?
Q5. Can I lose more money than what I deposit into my account or do you have any protective measures to prevent this from happening?
Q6. What indicators, chart types and time frames do you have on your trading platform?
Q7. How do I deposit or withdraw my money and how long does it take?
Q8. Which banks do you trade through?
Q9. What is the quality and availability of your customer service?
Q10. How long has this company been in operation, is it regulated and what are the company’s accolades.
Q. “I’ve been trading for the last six months and a friend asked whether I was trading OTC or not. Can you please explain what OTC means as I wasn’t sure what to say?”
A. There are two places you can trade financial instruments through.
One is on the exchange and the other is via OTC (Over The Counter).
To understand what OTC is, first I need to address the other form.
The exchange is basically a central and regulated place where markets are traded through.
By traded I mean, bought, sold and exchanged.
This means that when you buy or sell a position, the transaction is executed through the exchange, such as the JSE, FTSE, NYSE etc…
These transactions are visible to the public.
An OTC market is the opposite of an exchange market.
This is a decentralised market that does not have a physical location where a trade takes pace.
This means traders and even investors trade through an electronic trading system instead of a major exchange.
Once they carry out a buy or sell transaction, the process is executed between two parties (you and the market maker rather than the public). I’m talking about companies like Rand Swiss, Velocity Trade, QuickTrade and GT247.
If you are trading derivatives such as CFDs, spreads or futures you’ll be most likely trading via an OTC market.
Q. “My broker asked if I want to square up on my position, I’ve never heard this term before. Can you explain what this means?”
A. When you are neither long (where you’ve bought a position in the hopes the market will rise where you’ll bank a profit) or short (where you’ve sold a position with the hopes the market will drop where you’ll buy back your position for a profit) you are known as being square.
When a broker asks if you’d like to square up, they’re asking if you’d like to close your position where you are neutral and out of the market.
Brokers’ use this term instead of saying sell or buy to make it easier for you to understand what they mean.