CFD Trading in Dubai can be a Side Gig for a Flashy Lifestyle?
Many high net worth individuals often engage in trading as a side gig to find ways to generate some additional income on the side and use their existing funds to safeguard against inflation.
While the most popular avenues for such trading are the crypto and stock markets, forex and CFD trading in Dubai are also easily accessible and can potentially add to overall financial security.
However, it is important to note that trading involves substantial risk and research is essential in finding the right investments to trade, especially when doing so using large sums of money.
The nature of CFDs allows for high leverage, which can make even modestly profitable trades deliver substantial returns. This makes it easier for traders on the side to make extra money without the need to dedicate most of their time to thorough market research and building complex trading strategies.
However, the specific use case for CFDs in such a scenario may require more analysis to optimize the time spent on research and the overall effectiveness of CFD trading in Dubai as a side gig.
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How to trade CFDs as a side gig
If you are someone with substantial savings, chances are you can set aside the amount required to take advantage of the high leverage offered to you by most forex/CFD brokerage firms. In many cases, the leverage available to CFD traders can reach as much as 1:500, which is a substantial ceiling and can greatly boost the buying power of your account.
Before we delve deeper into how to use CFDs as a side gig, we must first understand what CFDs are and the mechanics of how trading these instruments works.
What are CFDs and how do they work?
Contracts for differences, or CFDs, are financial derivatives that allow traders to speculate on the price movements of an asset, without the need to actually own the underlying asset.
Instead of buying and selling a physical asset like a stock, commodity or currency, a trader enters into an agreement with a broker to exchange the difference in the asset’s value between the time the contract is opened and closed.
CFDs are leveraged products, which means that the trader puts down a margin deposit, which magnifies both potential profits and losses.
The amount of a particular instrument in a single CFD depends on the asset class, for example:
- For individual stocks, a CFD typically equals a single share.
- For indices, one CFD may represent a fixed amount of the index value ($1 or $10 per point movement).
- For commodities or forex pairs, CFDs are typically structured so that one contract corresponds to a specific quantity (Such as one barrel of oil, 100 ounces of gold, or a standard forex lot).
Some brokers also offer mini or micro CFDs that allow smaller exposure, which is useful for retail traders.
How are CFDs different from stocks?
While both CFDs and stocks allow traders to benefit from the price movements of an exchange-traded instrument, they are fundamentally different from each other in several ways.
When you buy stocks, you own a share of an established company that is listed on a stock exchange. Becoming a shareholder comes with certain rights, such as voting on the shareholder meeting, and/or receiving dividends if they are issued.
Stocks are typically held in a brokerage account, and your gains and losses depend on the market value of the shares over time.
On the other hand, CFDs do not provide asset ownership. Rather, you enter into a contract with a broker to exchange the difference in the asset’s price between the prices at the opening and the closing of the trade. CFDs allow you to speculate on both rising and falling of the prices without ever taking ownership of the underlying asset.
Furthermore, CFDs often come with an overnight financing cost if they are held for longer than a day, which is not the case for stock trading.
Trading CFDs using leverage
Leverage is an integral part of the CFD trading experience and most CFD brokerage firms offer leverage similar to their forex offerings. For example, if the maximum allowable leverage on forex trades at a broker is equal to 1:400, the same leverage is likely to apply for CFDs as well.
However, it is important to consider that leveraged trading is done using borrowed funds, which means that you must be mindful of the margin requirements of your broker to avoid complications if the trade does not pan out as you would have hoped.
It is always advisable to use a conservative approach with margin trading to avoid massive losses and a margin call.
How much time will you need for market research?
If you are looking for CFD trading on the side, time management can be essential to not derail your other plans, whether it be your business, full-time work, or any other form of primary income source.
Typically, dedicating a couple hours a day to market research can go a long way in gathering important data and learning different approaches to CFD trading in the process. Such an approach is especially advisable if you have no prior experience trading CFDs or other instruments.
If you would like to direct more focus to CFD trading, you can set aside 4 or more hours a day to do research, reading market news, macroeconomic updates, etc.
Realistic returns from CFD trading in Dubai on the side
Expecting market-beating returns as you are just starting out with CFD trading in Dubai is unrealistic, as CFDs can be somewhat complex due to leveraged trading, while the underlying asset classes also come with inherent risks. For example, stock CFDs are very different from commodity CFDs, due to differences in sector risk, liquidity, market hours, etc.
For example, if the annual stock market returns are 10%, you should set your expectations at a modest level, depending on the number of trades you are planning to execute over a month. A monthly return of 2-3% is highly realistic, as long as your strategy is consistently profitable.
However, the market can be highly volatile and one mistake can prove costly. A balanced use of margin trading and careful planning are essential in cultivating a successful CFD trading strategy.
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