Which is better? Trading stocks or trading CFDs?
Look:
There is no perfect way to trade because it always comes down to what you are exactly looking for in your trades.
Let us take a look at the advantages of trading CFDs:
1. You can trade with lower costs
For some of the brokerage you might find, the cost of a usual trade is upper $29.95 plus GST while other contracts are usually around $19.95.
While it is possible, you may see some share brokers with a more reduced cost of $19.95 and $11.95. But CFDs are generally around $7 minimum or 0.08% or even 0.1%, which means that it is possible to trade $10 for every $10,000 parcel, $20 for every $20,000 parcel and so on.
Bottom line?
Trading costs are usually mitigated when you’re trading CFDs.
2. It opens a great and relative opportunity
In trading stocks, you will notice that once your trading capital is completely used up, you are 100% tied up into it unlike in CFDs which will lead you to more trading opportunities because of the low-cost trade offer.
There’s more…
CFD trading provides you with the ability to use leverage in your trading. Obviously, that is a double-edged sword so you do need to be careful of not using too much leverage because it will cost you money too.
Let’s say you put have $50,000 and you put all your money into stocks. It means that all your money is already in the stock market and your capital is 100% employed.
There is no way you can easily take it out if you want and you will lose another trade opportunity in the process.
With CFDs, you will be able to access more opportunities and use leverage on your account. And if you wish to trade safely, you can quit using leverage or you could leverage enough to access the more opportunities.
A lot of system traders use leverage for this very reason. With the new CFDs, the system will go through purple patches where they’re generating quite a lot of opportunity.
If they’ve got a bullish system out in the market, then they can help it if a lot of opportunity meets the criteria at that point in time. So the ability to access more opportunities is a definite highlight of CFDs.
3. Guaranteed stops are allowed
One good thing about CFD trading is that they offer guaranteed stops. With stock and share trading, they normally don’t have this feature but with CFD brokers, they are often allow this into your trading.
How can I actually use this?
This special feature protects you especially if you’re trading on leverage and it is pretty obvious that the volatile world of stock trading doesn’t have guaranteed stop tool.
Plus500 Stop Loss
*Illustrative prices only
4. You can short-sell
Short-selling is the ability to make profit as the market is falling in value. You’ve probably heard markets do fall a lot faster than they rise so it is always good to have short selling ads as one of your tools in your trading toolbox.
You need to fully understand how to short-sell. It always comes in handy to know how to make money as the market is falling in value. But be reminded that it is also a double-edged sword, it is always best to know what you are doing.
In the event a market crash happens, with the help of stop-loss tool, you will be able to analyze quickly if the market is making a big rebound too. As a trader, you need to be more proactive when the markets goes bearish because it will eventually bounce back real quickly.
5. It offers no dividends and you don’t need to pay double tax for trading
Typically, you don’t get any dividends with CFDs or if you do, you don’t get any of the Franking benefits.
What is this so-called Franking benefit? It means that instead of paying double tax the company, the best thing to do is to work with your accountant to see if there are things you need to accomplish regarding tax and your trading.
If you’re interested to try CFD trading then you better sign-up with a known and reliable brokerage service like Plus500. Aside from being a trusted brand, they have the following advantages:
• Access to over 2000 of financial instruments
• Negative balance protection
• Alerts on price movements, Change % & Trader Sentiments
• Free demo account
• Online support
76.4% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
