CFD Trading and Stock Trading Face-Off

CFD Trading and Stock Trading Face-Off

Article by Steve H

A trader faces the same recurring question when he has investment alternatives to choose from. Which is better between the two- CFD trading or stock trading?There are no strict conventions to it as both stocks and CFDs have their features that make them better or worse depending upon the trader’s requirements. At best, you must first “test the waters” and determine whether you are cut out for CFD trading or not.

Trading CFDs have its own strengths and weaknesses. This means that you should know where you are strong and which issues you have to avoid. Once you are able to do these, then Contract for Difference trading can be a profitable instrument for you.

Advantages of CFD

Top facts that make CFDs a profitable alternative to stocks.

1. The range of options that accompany leverage

CFD trading is provided by brokers with substantial leverage of upto 10 to 1 and 20 to 1 ratios.Which signifies that the profit you make on CFDs trading can be multiplied 10 fold or 20 fold with the same amount of investment. What is the plus on this one? You can potentially earn more profit with just a small float.

Though, there is a pitfall. If you don’t follow a good system, or are not familiar with the system, then you stand to lose more than the amount of your float.

2. Short selling opportunities in CFD

This distinct characteristic translates to better buying and selling opportunities.CFD traders have the opportunity to make trades and make consistent profits relying on positive systems, irrespective to the market trend if it is a bull or a bear.

CFD Minuses

Though the leverage improves the profit multifolds but the risk involved of making losses is also substantial in respect to the applied system. In addition to this, there are two other issues that you have to take into account.

1. CFD providers come in two variations, Direct access providers and Market Makers, if you are dealing with market makers, there are hindrances like slippage and spread widening which can deteriorate your growth or even cause losses to your trading position.These are dead assets and trading them is quite a bit difficult if under slippage, even when you are trading in DMAs.There is not much free movement in stocks as they are not actively traded, which will restrain you to close your trading position at a certain price.

2. On the basis of the specific market circumstances, scaling up a trade would be confined and you must come to terms with the limits.It signifies that CFDs trading in a comparatively active market would lead to few or no concerns of liquidity.

These various details of both good and bad effects suggest that you must consider CFD trading Similar to any investment instrument, there are no ideal systems or automated systems to discuss about.A cautious trader would know the dangers to efficaciously solve the glitches in CFDs by searching for a better provider or making adjustments in the trading system.

Visit our site to know more about CFDs and CFD broker reviews.

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