Knowing the differences between Contracts For Difference (CFD) and stocks allows you to identify which market you should invest in. Here are some facts about the two markets;
Should I Trade CFDs or stocks? Which one is better, CFDs or stocks?
Whether you trade stocks, trade CFDs, or even do both, it all depends on what you want to achieve personally. Every trader has their own circumstances to take. Because of that, knowing the differences between stocks and CFDs is very important so you can decide which market works better for you.
What are the differences between these two markets?
What draws a line between CFDs and stocks is their ownership and leverage. If you buy a company’s stocks, you will gain full ownership of them. Stock investing is buying stocks of a company that you believe will prosper over time. Then, if you buy a stock, you will have to pay its full price.
Meanwhile, CFDs are done online and you can speculate on the asset’s price even without taking ownership of the underlying asset. There are different securities that you can trade with CFDs including stocks, cryptocurrency, currency, and commodities. Since CFDs are traded on leverage, you can start trading after paying a portion of the capital.
Advantages of CFDs
Leverage
Leverage allows you to enter a large position in the market more than the capital that you have. With leverage, you are being exposed to potential rewards and the risks are doubled too.
Going Short and Going Long
In CFDs, you can go long or go short. To go long, you just have to click the buy button then you can start trading. If you want to go short, tap the sell button.
Access to Different Markets
Trading CFDs allow access to major markets like Forex, Commodities, Stocks, Foreign Stocks, Indices, and a lot more.
Round the Clock Trading
Trading CFDs allow you to trade any time of the day. This makes it more accessible and flexible for international traders.
Which is riskier, CFDs or stocks trading?
Leverage that can be found in CFDs gives additional risk to traders. This is because the price movement of the market you’re trading represents a larger margin percentage on the amount you have deposited. This risk isn’t available if you pay the full amount of the asset which is done in stocks trading. Although potential profits are mirrored in CFD, it also mirrors risks and losses.
Which is cheaper, CFDs or stocks trading?
When you trade CFDs, you can use leverage to lower the amount you have to pay to start trading. This allows you to have greater market exposure. With stocks, you will have to pay the entire value of the asset before you can start trading and you can have full ownership of the asset too. With CFDs, you can speculate without owning the underlying asset.
Can you do short-term trading with CFDs?
In CFDs, you can both go long term and short term. Although, you will have to pay an overnight fee if you opt for long-term trading.