Trade CFD Shares Online
CFDs (contracts for difference) are a relatively new tool in the financial world. In a nutshell they are a form of financial derivative that allows a trader to take a position on an underlying asset without actually having to purchase the asset itself. This means you can take a position on a number of assets such as FOREX, Commodities and Shares. This article we will focus on trading share CFDs online.
You can trade share CFDs online through your CFD account. What this means is that you can purchase a CFD which will be priced the same as the share you wish to purchase at that current time of purchase, but you won’t actually own the share, you will instead own a CFD which is valued the same as a share. There is a large variety of shares that can be purchased through a CFD broker, but not ALL shares can be traded through CFDs. CFD providers tend to stay away from illiquid shares, so it’s usually the larger shares that are traded more often that are available trough online CFD platforms.
Here are some of the reasons you would trade CFDs instead of trading the actual share:
You want to trade on leverage. If you want to make a large trade, you can purchase most shares between 5-20% margins. This means you only need a fraction of the money to open the position. If you have a hot tip or a “sure thing” using the power of leverage can drastically increase the return you receive on your trade.
You want to hedge your current portfolio. If you already own a large position of shares in a portfolio and you want to hedge this investment because you suspect there is going to be some down times in the short term future, you can open a short CFD position of the same value as your share holding. This will protect you against any negative movements in the share price.
Why you wouldn’t trade CFDs instead of the actual share:
You are looking for a long term investment. The leverage and interest factors of CFDs mean that there is depreciating value the longer you keep the position open. Thus if you are looking for a long term investment (6 months plus) you shouldn’t choose to trade with CFDs.