Investing in the property market is something that many investors consider, yet the large amount of initial capital required can be a problem. One way to get around the problem and to get started on your property portfolio is to gain a foothold through CFD trading.
What is CFD trading?
CFD trading enables you to increase your leverage for property investing. A CFD is effectively a deal between two parties in which they agree to exchange the difference between the closing and opening price of a product. With a CFD, you don’t actually own the asset you are trading on.
Benefits of CFD trading
CFDs enable you to trade on price movements across thousands of markets. You can buy or sell, which gives you a great deal of flexibility. For instance, if you think that the outlook for a particular market is positive, you can buy into it and then sell when the price rises.
Another benefit that comes with CFD trading is that it is based on margin trades, which enables you to make the most of your market exposure yet risk just a tiny fraction of the investment you would typically need to invest into the underlying property. Of course, leverage can be risky, as it can also amplify your losses, so care should be taken when using this tactic. Before you look at CFD brokers, it is a good idea to learn about CFD trading in more detail from one of the many online resources that are available.
REIT and property stocks
One handy way to invest in property without a large amount of initial capital is through Real Estate Investment Trusts (REITs) or property stocks. These are a convenient method of getting into the property market with just a few hundred pounds, and by using CFD trading, you can safely hedge your position to reduce your risk. Let’s say you have an open position with a particular REIT but you think its price will drop. Instead of selling your stock and taking the full loss, you can take a short position on the stock’s CFD, which will help you to reduce your losses.
Hedging on physical property holdings
Using CFDs to hedge your investment in property isn’t confined to stock holdings. You can also use this method if you hold physical property investments. For example, you may have bought a property, expecting prices in the property market to rise, but your plans are disrupted by short term economic changes that cause property prices to fall. Instead of selling off the property and taking a loss, you can hedge your losses by taking a position in the REIT market to offset your exposure.
As with any form of investing or trading, the use of CFDs should only be considered with a full awareness of the risks involved. But for the shrewd investor, CFD trading can be a handy way to boost your property investing, particularly at an early stage.