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CFD Trading Vs. Share Trading: 5 Things You Should Know

CFD trading

Are you starting a career as a trader? Trading is buying and selling assets. In addition, you need to predict if the price of an underlying asset will rise or fall. So the first thing you need to do to start trading is to open a platform.

After that, you should learn how to read and analyse the charts so that you can start practising how to trade. Then finally, you can create your trading strategy.

As a beginner, it may be hard to compare one type of trading to another. However, when it comes to contract for differences (CFD) and share trading, you can easily distinguish which is which.

 

So if you would like to know the difference between the two, then you should check the list below!

1. Ownership

One of the things that made the contract for differences (CFD) and share trading different from each other is the ownership. When it comes to sharing trading or the traditional way, you need to invest in underlying stocks which makes you the owner of the physical asset.

On the other hand, CFD is when you buy a percentage of the underlying asset. It doesn’t make you the owner of the physical asset, but the good news is you can gain exposure without investing a lot of money.

However, in CFD, there’s a required margin rate before you can start opening a position. The rate depends on the contact, and piece of the asset you wish to trade, Meanwhile, in traditional share trading, you can start opening a position as soon as you buy the share.

2. Going short and long

If you’re planning to go long, both contract for differences (CFD) and share trading is recommended. But of course, it’ll still depend on the movement of the market. For instance, if the price of the underlying goes up, you can trade both ways.

Unfortunately, when it comes to going short, traditional share trading is not that popular. It’s mainly because it can be complicated compared to CFD. In CFD, you can always share the contract whenever there’s a chance that the price of the underlying asset goes up.

But before you go short in CFD, you must inform your broker first before moving on to your strategy.

3. Financial instruments

A financial instrument works as a financial asset. It’s similar to a system where money and capital move. Moreover, it can be used for different purposes, and in this case, for trading. But before you choose a financial instrument for trading, you should familiarise yourself with the different types and their functions.

Using financial instruments also gains you access to different markets. If you trade contract for differences (CFD), you can have a wide range of choices which includes commodities, shares, and indices. On the other hand, when you opt for share trading, your investment is only limited to shares and ETFs.

It doesn’t necessarily mean that one is greater than the other. At the end of the day, choosing between CFD and share trading depends on your preference.

4. Trading hours

In terms of the trading hours, you can trade contract for differences (CFD) 24 hours, 5 days a week. However, if you left a position open overnight, you’ll need to pay overnight fees. It’s kind of expected that CFDs are closed when the market’s closed since it’s

Meanwhile, traditional share trading can only be traded during the opening hours of the stock exchange. But since it’s more inclined in going long, there’s no need to pay for overnight fees, unlike when it’s in CFDs.

Generally, since both come with pros and cons, it’s up to you to set your trading objectives and strategies to earn more!

5. Shareholder privilege

When it comes to shareholder privilege, it doesn’t favour CFD trading that much. Since the trader doesn’t own the underlying asset, they also don’t have the rights when it comes to making decisions.

Meanwhile, in share trading, you have the privilege to vote for the betterment of the company. Aside from that, you’re also entitled to inspect documents and receive dividends.

So if you would like to get involved with the company, it’s best if you invest in share trading. Otherwise, you can opt for CFD trading.

At first, it may seem overwhelming especially if you have no idea about the different kinds of trading. However, once you try and practise trading CFDs and shares, you can gradually adapt and create a strategy.

Furthermore, it’s okay if you take some time in finalising what you want to trade. After all, it’s more important to make sure that you’re ready other than just taking the risks. So if you have any tips in finalising your ideal trading ground, then don’t hesitate to leave a comment below!

ABOUT THE AUTHOR: Aliana Baraquio is a web content writer at FP MARKETS, a global Financial Technology services Foreign Exchange (Forex) and Contracts for Differences (CFD) broker established in 2005. She also loves reading about interior design and home makeovers.

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