Both CFDs and Share trading are popular investment ventures. It is important to understand that these two have their own strengths and weaknesses. They have differences worthy to be mentioned and get to know with.
One of the main differences between Contracts for Difference trading and share trading is that the latter requires taking ownership of the underlying asset by paying the full amount while the other one is speculating in the market without owning the underlying asset.
Contracts for Difference can be traded on leverage which is very convenient for retail traders because they can loan as much as 95% of the total amount of the underlying asset and only pay the 5% to be able to gain exposure to the market of preference. Because of that, traders get the chance to amplify their profits but that doesn’t mean that they are safe from losses. Losses are inevitable even in CFD trading. In fact, losses are mirrored in CFD trading and you can lose your deposit amount. Meanwhile, shares trading is a more secure investment because you will not lose more than the amount you invested since you have paid the full amount upfront to gain full access to a trading position.
To profit in the market, traders must take advantage of the price movement in the market. This is applicable for both share trading and Contracts for Difference trading. Here are some of the key points that you must see for you to be able to determine which one is the best for you.
Share trading is the buy and sells of physical shares of a particular company. There are no expiry dates in share trading and can only be traded when a related exchange goes open. Traders won’t be required to pay for the positions to remain open. No overnight charge or fees. Share trading is particularly suitable for long-term investment especially if the price of the asset is stable.
With Share Trading, you get dividends and commissions will be charged on you for all trades. For international shares, you will shoulder the expenses for the currency conversion.
Contracts for Difference is a derivative product that allows traders to trade on the prices coming from the underlying market but not directly from the underlying market itself. Just like share trading, there are no expiry dates on CFD trading.
CFDs are commonly used for short trades because traders will be asked to pay overnight charges. It is very suitable for daily, intra-day, and medium-term. Hedging is also possible in Contracts for Difference plus you can trade in more than 17,000 markets which include Stock Indices, Forex, Shares, DMA Forex, Cryptocurrencies, DMA Shares, Metals, ETFs, Energies, Soft Commodities, Spot Metals, Options, Interest Rates, Sectors, Bonds, Stock Index Futures, Daily Oil Futures, Share Forwards, Daily Stock Index Futures and Forex Forwards. Another advantage of CFD trading is its convenience. You can deal with it not just on your computer but on your mobile phones and tablets as well.
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