Features and Important Functions of CFD Trading
CFD trading and shares dealing has its own differences that draw them apart. Although these two are good investment options, it is important to identify their differences first before jumping to a conclusion on which one to use.
Features of CFD Trading and Shares Dealing
- CFD and shares dealing both allow traders to go long and to take advantage of the rising prices in the market.
- When it comes to the ability to go short, only CFD has this feature. Share dealing doesn’t have it.
- The ability to hedge is also for CFD only. You cannot do it with shared dealing.
- CFD is free from Stamp Duty, something that you can’t get on shares dealing. Because CFD is known as a derivative product, it allows you to speculate as to the price movement of shares without really owning the physical asset. Since you don’t own the physical asset, you are only not obliged to pay for the Stamp Duty.
- Both CFD and Shares dealing requires payment of Capital Gains Tax.
- Leveraged trading is only possible for CFD traders and not on shares dealing. Leverage allows traders to get larger market exposure after paying a fraction of the underlying asset’s value. With the traditional shares dealing, you will have to pay the broker over the number of shares that you want to buy. For instance, you want to purchase £10,000 shares on Facebook. You will have to pay the full amount of the deposit which is £10,000. But CFD doesn’t work this way. In CFD, you will have to invest a little amount to acquire the same exposure as the ones you have in shares dealing. This is a great option for retail traders.
- It is true that leverage has notable benefits, especially among small Forex traders. As it mirrors gains, it also mirrors losses. Therefore, you need to make sure that you can employ a good risk management strategy before you try to use leverage trading.
- Immediate dealing is possible for CFD and shares dealing.
- CFD allows full access to other assets namely Forex, Indices, and others. This isn’t possible with shares dealing.
- Both CFD and shares trading give you full access to global shares where you can trade more than 10,000 different shares across the world.
- You can receive interest adjustments and dividends in both CFD and shares dealing.
- For physical ownership, it is not possible on CFD trading. It is only allowed to share dealing.
A lot of retail traders find it hard to be consistently profitable in both Forex trading and CFD. But success in the trading industry is something you cannot achieve by merely sitting down and doing nothing. You need to upgrade your trading strategy and make it fit your trading personality, risk appetite, and trading schedule. Once a strategy is created, you must make sure that it is historically back-tested before you use it in the live market. This will ensure its effectiveness and the risks of losing become minimized. Develop a mentality of strictly following your strategies consistently because no matter how great your strategy is, if it is not followed then you are merely wasting your time and effort.