In this article we are going to consider two kinds of financial trading: CFDs and shares. Additionally we are going to compare these two methods, trying to see the benefits of one over another.
Presently there are plenty of traders considering, that CFDs have many advantages over shares. However, you can't be sure that people making such conclusions are experts in both CFDs and share trading. Actually when reading such comparisons nobody questioned whether or not the people who write these text are experienced in this sphere investors. Moreover, we don't know whether they have any experience in both Cfd and shares trading or not.
Firstly, we are going to have a closer look at the fact that CFDs and equities differs strongly not only in the manner they work but also in how they're traded. One of the first differences is that CFDs are an over the counter or OTC instrument. This means that your trading are usually not conducted on an exchange but rather with the CFD company that you are dealing with. Anyhow, when talking about shares trading, here it should be mentioned that this financial instrument traded on an exchange. This implies that you are buying and selling off other people in the market with your share broker simply acting as a conduit providing you with a gateway to the share market.
After that, let's have a look the differences in the trading processes of CFDs and shares trading.
We are going to start comparing from one of the most apparent differences between both products is the way they are settled. It should be notedthat whenever you buy equities on the stock exchange you do not have to pay for the stock for three days. But on contrary if you sell equities you do not receive any dividends for 3 days. However, when buying and selling CFDs there isn't a clearing house involved. The thing is that the transaction is OTC, alternatively speaking the rules here are set by your CFD provider, as CFD companies normally don't like to risk and settle a trade. What they will do is ask for some cash at the beginning of the trade.
One more important and obvious difference between CFDs and Shares trading is the notion of leverage. In CFD you have the option of leverage, this suggests that for quite a little outlay you are able to operate large sums of money on the market. But if you decide to use leverage, you need to keep in mind that even though margin can work in your favor, it could also work against you, this means that your earnings and your losses are both bigger. This implies that using leverage, you can lose more than your trading account balance.
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If you are interested in learning more on the subject of CFD trading and discovering how how you can benefit from trading this inovative financial product you can read more about CFDs on IC Markets web site.
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