Why trading CFD on shares?

Trading contracts for differences is a pretty straightforward and easy investment taken into account that you can access the markets directly from your PC or other electronic device. But what are contracts for differences anyway? By definition CFDs are financial instruments that are exchanged between a buyer and a seller for the purpose of making profit out of the difference in prices between the moment as asset is bought and the moment the asset is sold. CFDs are based on various instruments such as shares, stock exchange indexes and many more. In this article I will outline the main advantages of shares trading via contracts for differences. Above all I would recommend to find a cost effective solution to execute your trade. For instance these conditions on CFD Shares are a good place to start. 

After you read this article please let me know how it contributed to your trading experience. Was it useful for you?

If you are willing to invest in shares and buy them directly on a stock exchange you might experience the following: first you have to find a broker who can meet you with a seller. Suppose you want to buy 500 Shares of IBM priced at $200 each. This means you will become a share holder of 500 shares valued at 100 000 USD. Before executing this deal you have to find a seller who is willing to sell those assets at exactly that price in this given moment. After you agree on the price and quantity you pay your broker a commission and that is it. Now you hope that the share price will rise so you can sell at a profit. 

From this scenario we have 3 main points:

- You must dispose the amount of 100K USD

- You must find a seller who wants to sell the shares at this moment and

- You must pay your broker a commission

Now imagine you can skip all the three points and still execute the same deal. Yes it is possible with CFDs! Let's see how you can do the same deal by using CFDs. 

Of course, retail traders hardly have this kind of amount to invest. If you open an account with a CFD broker, you will be able to use leverage. Leverage allows you to open positions with amount significantly higher than your initial investment. For example a leverage of 100:1 (which is commonly used) you need only 1000 USD to open the above said position of 100 000 USD. Be careful though! The leverage can lead to higher losses/profits than if you have been trading without it. 

No need. The broker will automatically execute all your trades because it has liquidity. Of course it depends on the broker but most of the cases that would be a problem. As long as you trade with well capitalized and reputable broker each of your dels should be executed. 

Paying commissions to the broker?

Many CFD brokers offer commission free trading. You can pay only the spread which is the difference between bid and ask price. If you check for yourself you will fond out that there is no doubt which of the methods is more cost effective - in everybody's opinion that's CFDs. Moreover, CFDs are tax exempted in most countries. 

CFDs are easy to trade and is accessible to everyone. You can open a demo account prior to investing your hard earned money into the markets.