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Dear MATI Trader,

Transparency is everything with trading.

The good and the bad.

Here at MATI Trader, we want to expose you to the realities of trading.

What better way than to start with the PROS and CONS of trading.

Derivative Trading – ADVANTAGES

Advantage 1:
Minimal costs

Whenever you take a derivative trade, remember you’re only buying a contract and making a bet on the direction of the underlying market, rather than owning anything physical.

This means, you won’t have to worry about paying high brokerage and other trading costs like:

  • STT (Securities Transfer Tax)
  • Stamp duty
  • Settlement and clearing fees
  • Investor Protection Levy
  • VAT
  • STRATE

Advantage 2:
Profit from up or down markets

You can make a profit by buying low (going long) and selling at a higher price. Or by selling (going short) and buying the borrowed shares at a lower price for a profit.

Advantage 3:
Get paid dividends

When you buy a derivative of the underlying share, which pays dividends, you’ll be entitled to the full amount when you buy the market.

Advantage 4:
Instant access to world markets

Your broker will most likely offer you a large range of markets from local to international shares, commodities, currencies or indices, the world is virtually your trading oyster.

Derivative Trading – DISADVANTAGES

Disadvantage 1:
Gearing – Magnified losses

Gearing unfortunately is a double-edged sword. If the trade goes against you, you could wind up losing more money than what you deposited.

Disadvantage 2:
Commitment

Trading is an active business. You’ll need to commit more time to your trades than you would with investing.

Disadvantage 3:
No shareholder privileges

When trading a derivative, you won’t be able to vote, attend AGMs or have any say in helping with the underlying companies.

Disadvantage 4:
Pay dividends when you’re short

If you sell (go short) a trading derivative, with the underlying share which pays dividends, you’ll then have to pay the portion of the dividend instead.

Timon Rossolimos

Founder, MATI Trader

PS: Have any more pros or cons with trading, post them in our Facebook group.