Trading CFD and shares are different in many ways. The former was created centuries ago while the latter existed sometime in the 90s. Due to the difference in the era where they were created, most people think that trading shares is better than CFD. Though they may be right when we talk about shares trading security and regulations, we also can’t deny the fact that convenience and a promising increased profit are the advantages of CFDs. Since CFDs were created later than the traditional shares market, some people also think that the trading process for both instruments are the same. Such is another partially correct statement because CFDs can be traded with other goods such as stocks,commodities, currencies and others. The above stated explanations merely focus on CFD and share trading characteristics based on the time of their creation. Because CFDs are newer than trading shares, novice traders have so many queries that need clarification. To help these traders on their research, we have cited 5 frequently asked questions together with an explanation to answer them.
1.Can anybody be involved in CFDs and the Shares Market?
Everyone can be a trader but the trading instrument for a particular trader may not be the same with the others. Trading CFD is designed for people who have an idea on the analysis of market rates. Since it is less regulated than trading shares, it is considered a riskier trade as one could lose everything on their deposits if positions are placed the wrong way.
- Can I trade on multiple markets?
A trader who is into the traditional shares trading can only trade on one physical market at a time. A CFD trader on the other hand can enjoy the comfort of making a deal in multiple markets with the use of a single account. Such action is possible because several CFD Trading platforms offer exposure and involvement in the global trade.
- Is CFD Trading a safe trade?
Though CFDs are not as regulated as shares trading, a trader can be protected with risk management strategies. Safety also lies in the selection of legit and trusted CFD brokers. Expert CFD traders suggest that you look for a broker that offers tools such as stop loss orders,order size and choosing leverage.
- Do CFD contracts expire?
Yes they do but unlike other forms of contract, CFDs do not have a definite expiry date because CFDs are naturally flexible. This therefore means that a trader can decide to short sell an asset when market rates go against him and go long if market rates favor him.
- Are shares trading more expensive than CFD trading?
CFD trading allows lesser initial capital as compared to shares trading because CFDs are goods that are traded on the basis of leverage and margin. Margin is a term used to avail an access to a particular asset by paying a portion of the actual value. Doing this will allow you to have full market exposure at a cheaper price. In return, you could possibly magnify both profit and losses so it is necessary to trade wisely.
Conclusion
These 5 questions and answers regarding shares and CFD trading tells us that trade selection should be based on the trader’s interest and availability of capital. CFD is designed for bold traders who care about profits rather than risks and losses. Shares trading on the other hand is for conservative traders whose goal is to protect their money to the highest level.