The difference between stocks and CFDs is not minor, and the investment strategies here are different and carry different levels of risks. In the case of stocks, or shares in a company – these are actual titles that when traded, a person either buys or sells part of the company. For CFDs (short for Contracts For Difference), a trader does not actually own shares, but rather takes a position in the price of the shares against other traders.
Stocks – are the most popular financial instruments in the world, shares which entitles the holder to own a part of a public company. At the beginning, shares are sold by the initial owners of the company in an IPO (Initial Public Offering), and afterwards shares are traded on the stock exchange, where the price is set in the demand & offer dance of the free market.
Buying shares or stocks requires a good capital as this gives its holders part of ownership in the company they buy into, along with right to profits or loses the company may enjoy. Buying or selling shares is done through a stocks broker that can access a stock exchange and do the trade on behalf of the user.
While it requires larger capitals to join the stock markets, this investment instrument is also one of the safest when compared to other financial instruments and derivatives available out there. This way, if a share price goes up, the holder will make a profit when selling, or if the share price goes down, the holder will make a loss. The loss in this case would be only the difference between the buying price and selling price. Only if the company goes bust the shareholder loses the entire value of the share.
Shares / Stocks are traded on different stock exchanges available in each country. Check below for a list of monitored stocks by iTrading.Guide:
Contracts For Difference
CFDs – are an increasingly popular derivative trading instrument that enables traders to speculate on the rising or falling prices of financial instruments such as shares, indices, commodities, currencies and treasuries. A CFD is not the same as a share as the holder does not actually buys or sells from the traded company.
Trading CFDs does not require the same capital as when buying in shares, as CFDs are a leveraged product, which means that you only need to put down a small percentage of the full value of the trade in order to open a position. With online brokers, this leverage reaches even up to 500/1. Also known as trading on margin, CFDs allows traders to magnify their returns exponentially, but at the same time their losses will also be magnified as they are based on the full value of the CFD position.
Because of this leveraged position, CFDs are much more riskier financial trading instruments than regular stocks. Traders could lose more than any capital deposited when taking a CFD position. CFDs can traded at online brokers that may also offer besides stocks some other popular markets like Forex or Commodities. Some of the online brokers also offer a trading welcome bonus package for new users registering an account with them.