The struggle of defending your side towards trading CFDs compare to Trading shares is indeed a challenge, especially when dealing with loyal share market traders. The heated debate between CFDs and Shares will never get resolve because the suitability of every financial instrument basically depends upon the risk tolerance of every trader. This then means that what may seem risky to one person may easily manage by another. The beauty of trading does not lie in the best instrument but in the best way of handling each instrument. In addition to this point, every trading or financial instrument, despite their differences in characteristics shares some sort of relationship, especially when hedging and diversification get in the picture. In the next segment of this post, you will see a comparison between CFD and the share market as well as the possibility of using both instruments in your trade.
Overview on CFDs
CFD is an acronym that stands for Contracts For Differences. With its name alone, we make to understand that this type of financial derivative is an agreement between the broker and the trader to speculate on the market rates of an asset without owning the asset itself. This material is usually offered by trading platforms and brokers together with other forms of financial instruments such as stocks, commodities, bonds, or even forex. For novices, it is important to take note that trading CFDs is very different from the old fashioned way of trading. Because CFDs require the use of applications and computers, we can consider CFDs as contemporary trading instruments.
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Benefits that Traders get from CFDs
Aside from convenience and freedom from ownership obligations, CFDs also have the following advantages
- Higher Leverage- CFDs naturally leverage items so a trader can take advantage of a minimum of three times higher leverage than other instruments.
- Flexibility in Position (Traders can go long or short selling)- With the right strategy, CFDs can use for both long term and short term positions.
- Perfect Instrument for Hedging and Diversification – CFDs can trade in various markets so it is very suitable for diversifying and hedging
Share trading is the manner of buying or selling a part of a company. This part of the company is called shares. These shares are transacting or traded in stock markets. In a digital era just like these days, share trading is no longer done in a physical market but through the internet.
According to experts, share trading is more secure than other trading choices because it commonly practices by trading enthusiasts. Moreover, this trade poses a lesser risk because its regulatory bodies designate to monitor any untoward practices that may happen during certain transactions. Experts also take pride in the three ways to earn profit from dealing with shares.
- Capital Growth
- Tax Benefits
With the known benefit of CFDs in terms of flexibility and diversification, a trader can put shares trading and CFD trading in a single portfolio or account in order to strengthen their advantages and offset their respective disadvantages.