Why CFDs Could Be A Better Option Than Trading Stocks

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    Why CFDs could be a better option than trading stocks
    Why CFDs could be a better option than trading stocks

    Although CFDs and stock trading are both viable options, there are several reasons why some might prefer CFDs, such as access to global financial markets.

    CFD versus stock trading

    Those that are exploring the world of trading may be overwhelmed by the various options that exist for them to pursue, two of which are CFD trading and stock trading. Some of the major differences between the two are leverage and ownership. When you are trading stocks, you are essentially buying a portion or stake within a company that you believe has the potential to succeed. In such  case, you pay the full price for each share that you purchase. With CFD trading, on the other hand, you do not gain ownership of the asset that you are buying. Instead, you are looking to profit from the spread between the price at the start of the agreement and at the end of the agreement period. Therefore, the risks associated with owning the asset with CFDs does not fall on the buyer. CFDs allow for speculative trading.

    While CFDs trade on leverage, stocks do not. As such, CFDs allow you to enter a trade with relatively less capital investment and across multiple markets. Although some people are still uncertain about the legalities of trading, CFD trades in England, Germany, Switzerland, South Africa, and several other regions in various parts of the word, is permitted. Trading policies and regulations do differ depending on which country you are trading in, and it is also important to be cognizant of the applicable tax rates for such activity.

    Why CFDs may be the better option

    It has been reported that CFD trading in the UK, and other parts of the world, has been increasing in popularity in recent years. This is understandable given the public’s growing interest in ways to make money online and how new trading technology has become available to anyone who is interested. While trading stocks is also another viable option of doing so, there are a few reasons why CFDs may be the better alternative. Firstly, CFDs give investors the potential to profit on both rising and falling markets, whereas trading stocks only allows them to profit when stocks earn dividends on increase in price. Additionally, most countries allow for the trading of CFDs after hours, whereas stocks can only be traded when the stock exchange is open.

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    Understanding that we live in a world where people appreciate convenience and ease of access, that is also the case when it comes to some investors. This is another reason why they may prefer trading CFDs over stocks, as the latter does not afford them immediate access to their profits. With CFDs, profits are made available within minutes, while it may take a few days to cash out shares, this may vary depending on the trading platform. Another key drawcard to CFD trading over stock trading is the fact that because CFDs allow for speculative trading across multiple global financial markets, such as forex, indices and commodities, amongst others. Stock trading, on the other hand, only permits the exchange of equities such as shares and exchange-traded funds (ETFs).

    While there are merits to both stock and CFD trading, it is quite clear why some people might prefer the latter, based on the points noted above.