Both stock and CFD trading offer a way of profiting from volatile market fluctuations. But what financial instrument should you invest in? Which one should you use to trade? To answer the CFD vs share trading comparison, we will look at the main differences.
The main difference between the two financial instruments lies in their fundamental nature. Normally, shares are bought and sold on the stock exchange. This means that traders can speculate on the price movement of shares. This is done by purchasing shares at lower prices and then selling them in the rising markets for higher prices. CFDs, however, allow investors to speculate on falling markets and do not have any connection with the underlying shares.
CFD speculators can speculate on falling markets by buying shares and then selling them in the financial markets at a profit. However, to do this, you need to have a margin – otherwise known as the difference between your price and the CFD margin price. CFD speculators can then hold onto these shares and wait for the prices to go back up to give them a profit, or they can sell their shares and take advantage of the falling market.
It’s important to note that there is a difference between CFD trading south africa shares and CFD contracts. With the former, you don’t pay any commission on your shares, while with the latter, you do pay a commission charge.
The reason for this is that the contract has no underlying asset that can be liquidated to pay the commission charge. If you wanted to get rid of the commission charge, all you would need to do is sell your CFD contracts. However, note that CFDs have a maximum holding value and you can not exceed this value.
Unlike traditional assets, CFDs are not transferable between traders. This means that if you wanted to move your CFDs from one market to another, you would need to use funds that are in the trading account to cover the spread difference between the two markets.
You can’t just change your CFD positions – once you’ve closed out your position, you have to consider this when trading in the same markets, or you run the risk of your CFD becoming worthless.
The attraction of CFD trading to traders is that it offers the opportunity to profit without having to buy and sell the underlying instrument yourself. For this reason, many CFD brokers also offer discount brokers to make it easier to trade. These brokers typically charge a small commission and may offer information on market news, as well as tools such as charts, graphs, and trend indicators to help the trader plot market trends.