Understanding share dealing & CFD trading

Read on and understand how CFD trading is different to share dealing.

13:22 20 May 2013

CFD (Contract for Difference) trading is a very comfortable way, compared to share dealing, of speculating on various instruments without actually buying stocks, commodities, or shares.

Traders speculate on the difference between the current price of the instrument and the future price. This type of trading is very similar to Forex, except that it’s not limited to currencies.

The biggest advantage of CFD trading is that traders have the option to have a long and short position on different types of instruments. This means better opportunities for traders to make a profit from any market movement, even the prices of instruments are going down.

CFD are a margined product thus, they provide extensive leverage and they allow great gains for short periods of time. However, when there is a great possibility of huge profit, the risk is usually higher. Thus, traders are recommended to use stop losses appropriately to minimise loss.

Unlike with share dealing, CFDs requires traders to shell out just a small percentage of the overall transaction size, which is usually 5-10per cent.

This means that you actually don’t need to have a lot of money to get started. However, make sure that you fully understand the process especially the risks before you jump with your two feet.