What’s better CFD trading or share market trading?

A large number of choices greater are the chances of confusion. If you fall under this category and are confused between share market trading and CFD trading, then do not worry. Here is the article which will cover the differences between the two. 

What is CFD trading? 

CFD trading is referred to as the selling and buying of CFDs. CFD is an acronym of contract for difference. They are the financial derivative instrument because they allow you to meditate on the financial market, which includes indices, commodities, shares and forex. There is no such thing as taking ownership of underlying security in this type of trading. 

When you decide to trade through CFDs, you agree to exchange the price difference of security from the time at which you open an agreement till the closing date. One of the primary advantages of CFD trading is that you can meditate on price shifts in either direction. The loss or gains you harvest depend on how good your prediction is. 

What is share market trading? 

Share market trading or stock trading refers to the selling or purchasing of physical firm shares. For instance, if you think that the price of a share will surge shortly, you can choose to buy a definite number of shares of that particular company. If the value rises in the future, you can sell them and harvest a massive amount. 

Share market trading Vs CFD trading 

Here are some key points for comparing both styles of trading. 

1) Tax implications 

The tax implication is also an essential factor to be considered while trading in shares or CFD. For example, in the United Kingdom, you do not need to pay stamp duty as you do now own the underlying asset. But, gains are subjected to capital gains tax. Whereas, in share market trading, stamp duty and capital gains tax are payable. 

Always remember that tax treatment of share market trading and CFD changes from one country to another.

2) Financial markets 

Another difference which one should consider when dealing with share market trading and CFD trading is access to the market. The CFDs offer a wide range of financial instruments for trading, which include shares, forex, indices and cryptocurrency. On the other hand, with stocks, you can invest in ETFs and shares only. 

3) Finance 

Another major difference between these two is the capacity to finance trades. While trading with CFDs, you can take advantage of leverage. It means that you can own a larger portion by spending a small amount. The rest amount is provided by the financial service provider with which you choose to trade with. The requirement of margin is generally between five per cent and 25 per cent. 

4) Ownership 

There are some apparent distinctions when it comes to comparing share market trading and CFD trading. Most common among them is the ownership of the underlying asset. In CFDs, you do not own the underlying security, whereas you can do this while trading in the share market. For example, with the S&P 500, you can profit from price variation without entering a legal agreement to own any equity and stocks in firms. 

5) Commission 

Regardless of whether you choose to trade CFD or share, you have to pay the fee. With shares and stocks, you generally pay a commission on every trade. It may also include the currency conversion fee on international trades. On the other hand, in CFD trading, you are required to pay the spreads on all markets leaving shares. Financial service providers charge a commission while trading shares on CFDs. 

6) Trading platforms 

Trading platforms play a vital role in considering the difference between shares trading and CFD trading. You can access both these financial instruments through mobile devices and desktops. Financial service providers offer popular software and bespoke, which includes the best platform, the Meta Trader 4. DMA or Direct market access is also available with both. 

7) Hedging 

Share market trading is not appropriate for hedging. You can use CFD for hedging share positions. It allows traders to sell or go short, so if the financial market declines, any loss in the trading positions can be balanced by profits made out of your short CFD position. 

TradeATF, an authentic financial service provider, offers various tools for hedging your trading account. 

8) Dividends 

Dividend also plays its role in the debate between CFD trading and share market trading. In share trading, you will get dividends directly in case paid, whereas in CFD the trading positions get adjusted for variations from dividends. 

9) Trading hours 

CFD provides you access to thousands of financial markets which include shares, indices, currencies and several others. You can trade effectively 24 hours a day. With stocks, you can only sell and purchase during stock exchange trading hours. 

10) Cash settlement

While dealing with shares, it might take a few days for a trade to settle down and gains to be available. Whereas, in CFD trading, there is no period of settlement. You receive loss or profit as soon as you close your trading positions. The outcome of this is that you can immediately reinvest your money in the next position. 

11) Long-term Vs Short-term strategies 

For day traders and short-term intraday traders, CFDs are the better financial product. For long-term investments, shares and stocks are regarded as the better choice. It is not wrong to say that you can harvest profit from day trading stocks and shares. 

12) Short and long trading opportunities 

With share trading, you can trade on only surging prices. On the other hand, with CFDs, you can take both short and long trading positions. 

13) Privileges of shareholder 

There are no shareholder privileges provided by CDFs. On the other hand, equity stocks bring voting rights to firm issues with them. 

14) Expiries 

Both CFDs and shares do not have any expiry dates. The exception to CFD is futures and options. Both these financial instruments have a fixed date of expiry decided beforehand. 

Which is better between CFD trading and share trading? 

Both these trading types have their own benefits. For the novice, stocks are less risky and straightforward. For experienced investors who wish to grab all the financial market movements and want to trade with leverages, CFDs can be a profitable option. It also opens doors for a wide range of financial markets beyond shares and stocks.

 Both these options seem to be good? Are you confused between the two? Let us provide the best solution for this. Start with the demo or virtual trading account. It is the account offered by the broker through which you can practice trading and your strategies before jumping directly into the market. Write down your trading expectations and then work on this account, you will get your answer. 

You can opt for TradeATF the best brokerage firm for trading. It is an authentic firm regulated by the Cyprus Securities and Exchange Commission. It provides different accounts for trading such as retail accounts (gold, silver and platinum), professional accounts and yes, the demo account. The minimum charge to start trading with the broker is $250, without any commission fee on trading. 

The Bottom Line 

Finding the answer to CFD trading Vs share market trading is a hard nut to crack. They both have their own advantages. The only solution to this is listing down your trading expectations and them comparing them with each market. You can also go with a demo trading account if needed.