Understanding the Pros and Cons of Share Trading and CFD Trading

Both Stock Trading and CFD Trading offer great means to profit in the financial market by speculating the price movement. But if you are torn between using CFDs or Stocks, then here’s a quick overview of them here. Check it out here;

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CFD Trading

Contracts for Difference (CFD) allows you to speculate on the market price from the underlying asset, without paying for the actual amount and the ownership of the underlying asset. For instance, you are thinking that the value of shares of Facebook will rise. If so, you can buy shares from your CFD broker. If your prediction turns correct and the stock value rises, you can sell the CFD to a new price with a much higher value. Your broker will be at the losing end and the difference will be returned to your account.

Share Trading

Although these two allow speculation of price movement in the market, Share Trading is preferred for long positions. With shares of stock trading, you are buying actual and physical company shares. But the process is just the same, you speculate on the price movement. But with CFD, you can use leverage to your advantage. Paying only 5-10% of the actual price of the asset but being able to open a larger position is already a good deal for retail traders.

CFD Trading or Stock Trading – Which One Is The Best Choice For You?

If you are yet to decide which one to use, here's a clear comparison of Stock Trading and CFD Trading.

Ownership

The most obvious difference between CFD and stock trading is ownership. In CFD, you don’t own the underlying asset but you can still speculate on its price movement but you don’t own it. But with stocks trading, you will have to buy the company share with its actual price before you can speculate. Buying the company shares gives you its full ownership.

Finance

The ability to finance each trade is also very different from CFD and stock trading. In CFD, you are allowed to trade on leverage. With leverage, you can start with a small investment and trade in a bigger position. You initially borrow capital from the broker and return it after a successful trade.

Markets

Access to different markets is another distinction to consider. With CFD, you are able to trade in a number of instruments, from shares, cryptocurrency, and Forex. But stocks are limited only to ETFs and shares.

Fees

If you’re trading, fees and charges are to be considered. Stocks and shares have different fees to be shouldered by the trader. So when you start trading, you need to ensure to know the fees and charges that your broker will deduct from your trading account.

Short and Long Term Trading Strategies

If you are a short-term or intraday trader, the most appropriate product for you is CFDs. But if you are aiming for long-term investment and want to have less risk in trading, then shares and stocks are the best options for you.