CFD vs Stock Trading
Stock trading is buying and selling various financial assets, mostly shares of companies and other products, in the stock markets with the aim of making profits. A good example is shares trading in which investors trade-in through various brokers, such as Forextime, which is one of the leading online trading companies. On the other hand, CFD trading is buying and selling of contracts for difference. It involves predicting and speculating the changes in values of stock shares and making profits if the market moves in the speculated direction.
Similarities Between CFD and Stock Trading
- The two forms of trading are similar in that they are an opportunity to invest one’s finance and make profits from changes in the value of stock assets.
- The two forms of trading also form part of a trader’s investment portfolio.
- When the underlying asset has gained value, in stock trading, the trader will receive dividend payments. In CFD, positions are adjusted so that the trader can offset changes from the dividends.
- A very important similarity is that traders need to do a lot of research and always be on the know to make wise decisions when investing to minimize risks and maximize the chances of making good returns.
Difference Between CFD and Stock Trading
- The main difference is that in stock trading, the result is profit or loss and the trader acquires ownership of the asset. While in CFD, after trading, the trader does not acquire ownership of the underlying asset.
- CFDs stocks offer the option of short or long trading and in some countries, CFDs are exempted from stamp duty. Stock trading is limited to shares and ETFs, while CFDs can trade a wider variety of instruments including shares, Forex trading, indices, and cryptocurrencies.
- When using CFDs trading, one can spread their capital using leverage and thus invest more and increase profit opportunities while in stock trading, the trader is expected to make full payment of the asset upfront.
- Stock traders enjoy shareholder privileges when they trade in shares while traders using CFD for the same shares will not enjoy these benefits.
- While stock trading is limited to stock exchange opening hours, CFDs trading is around the clock and can be done across different markets meaning a trader in Europe can trade in assets in South Africa or foreign exchange in Nigeria.
- A unique benefit of CFDs is that a trader can use it to hedge against an existing portfolio’s losses.
In this regard, they can use their existing broker or even a different trusted online broker such as ForexTime that offers CFDs and invest in contracts on their asset. This enables them to recover some of the losses made simply by speculating the change in the value of the asset.
It would be true to say that traders who are seeking to make profits in the short term are better off trading in CFDs rather than in stock share trading. However, investors seeking to have long-term investments can invest in both stock trading as well as CFDs.
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