Previously Published to Benzinga: The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.
Contracts for differences (CFDs), while prohibited in the United States, are extremely popular in other leading countries around the world. A CFD, as a derivative trade, is an agreement between 2 parties — usually the investor and the broker.
In a CFD, the trade will be opened, and the exchange will occur between the opening and closing price of the contract — or the difference in the value of a security between an opening and closing price.
Unlike options trading, investors have unlimited time to trade their CFDs before taking a profit or loss. The actual profit or loss will then be multiplied by the number of shares bid on at the time of trade.
Derivative trades allow investors to quickly turn a profit without owning the investment. Unlike day trading, there aren’t minimum account requirements or a minimum number of day trades available to investors with portfolios less than $25,000. The minimum deposit amount to trade CFDs can be as low as $200 USD, depending on the country, platform or asset.
Although investors should never enter a CFD with more money than they can afford to lose, some investors like taking lucrative risks on moving investments — and consider all losses minimal when leveraging existing trades or margins.
Find out why some traders prefer trading CFDs over traditional share trading below and for more information on share CFDs, click here.
Why Do Some Traders Prefer CFDs over Traditional Stock Trades?
CFDs allow investors to trade a broader set of markets and a larger pool of high-priced assets than traditional share trading. They provide greater transparency in the profit and loss of trades if they are closed out early.
Share or stock CFDs essentially allow investors to trade stocks under the guise of a contract for difference. In most cases, investors will trade traditional stocks by way of CFDs with all the perks CFDs have to offer, including entering transactions on margin with positions 5 times greater than an actual cash trade.
Why Would Investors Want to Trade Share CFDs Over Stocks?
1. Investors thrive when they are able to profit on both the rising and falling of markets, and this is one benefit share CFDs have. When trading traditional stocks, investors will only profit when a stock earns dividends or rises in price.
2. While traditional stocks can only be traded when the stock exchange is open, CFDs can be traded after hours in most countries.
3. Investors prefer CFDs for short-term trades, especially when prices surge. This allows for capitalization of an overvalued asset. Similarly, when day trading traditional shares, investors may find themselves violating the regulations if they have less than $25,000 in their stock portfolios or have made more than 3-day trades in a week.
4. Investors can use CFDs to take a more speculative approach on the rising and falling of more assets than they can trading shares — and across several global financial markets, including foreign exchanges (forex), indices, commodities, stocks and cryptocurrencies. Traders can only exchange equities such as shares and exchange-traded funds (ETFs).
5. Margin flexibility allows investors to leverage 5 times the amount of existing trades to gain the greatest exposure on overvalued stocks and amplify profits by going long or short on trade decisions. Traditional investors pay full value for shares upfront, profiting only when stocks rise in price.
6. When trading CFDs, profits are available in minutes. While cashing out actual shares can take up to 5 days, depending on the platform.
When trading on margin versus trading without, more shares can be acquired in the short term for a lesser price. Some investors don’t consider a trade worth their time if profits fall within a certain market capitalization. Margin trading allows them to buy and sell with higher quantities with the rising and falling of the share price.
When trading shares, investors tend to invest long-term with companies they have high expectations for. In exchange for their investment, they receive ownership in that company, dividends (also included in the trade price for CFDs) and voting rights. Although CFDs are generally considered for short-term positions, traders sometimes will hold (especially if they’d take a significant loss otherwise), and they will have to pay a small fee for each night their investment waits to be closed.
Introducing Axi
Founded in 2007, Axi has grown from a leading Australian startup to an industry-leading broker, with plenty of options for online trading across international markets.
Axi allows you to trade share CFDs in all your favorite stocks, including:
- Facebook (NASDAQ: FB)
- Amazon (NASDAQ: AMZN)
- Apple (NASDAQ: AAPL)
- Netflix (NASDAQ: NFLX)
- Google (NASDAQ: GOOGL)
- Tesla (NASDAQ: TSLA)
- Microsoft (NASDAQ: MSFT)
- Intel (NASDAQ: INTC)
Axi allows investors to trade across a range of assets, including forex, share CFDs, crypto CFDs, indices and commodities. To learn more about trading share CFDs versus traditional share trading with Axi, visit the platform here and open an account today.
Disclaimer: The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.
The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice
The author of this article owns stock in one or more of the above companies.
