Many investors consider trading shares using CFD opportunities as an alternative method of trading this asset type directly. This is because they can then utilize CFDs to speculate on the price movements of shares in a similar way as if they traded the actual share of those companies directly, without owning the underlying asset. With the use of leverage, you can trade a lot larger number of shares for a small capital requirement, allowing a trader to increase their profits on the small daily or weekly movements.
However, you must appreciate that there are significant differences between trading shares directly and using a CFD to do so. One of the main differences is that, in the first case, you will own part of a company after you purchase a share whereas in the latter option, you are just acquiring the ‘rights’ to buy or sell the share of your chosen company at a selected price.
You have no ownership rights when you trade shares using CFDs. Basically, shares are issued by their parent companies, whereas CFD contracts are independently underwritten by the market makers and are not related to their underlying companies directly but are fully regulated and prices move in direct relationship to the actual share price.
You will always have a good understanding of your exact risk and profit potential even before you activate all your share trades. You, therefore, can enjoy pre-calculated risk and money management when you trade shares using CFDs. You can improve your profitability at trading shares if you invest your time to learn and master trading strategies. You can also use strategies that will help you hedge your investments. For example, consider that you think that the shares of Apple will rise because of a current release of a new product. In addition, after your market analysis of this security, you deduce that it could adversely influence the market share of rivals such as Microsoft and so you can trade this share as well.
Consequently, you could activate a hedging strategy which would have the potential for a large payout, while minimizing your risks. As you can conclude, after analyzing the above trading examples, trading CFDs based on shares presents you with exciting profit opportunities.
On our platform, you can trade a vast array of shares from almost all market sectors and all exchanges around the globe. To learn more about trading shares, visit our education center.
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