CFD vs. Stock Market

By: Sona Khachatryan


Stock and CFD markets are quite often under discussion among investors, as both of them are considered to be very interesting and attractive. The principle of stock trading is more than simple: the companies result in either well or poor performance during their operation. Surely, the level of their performance directly affects the prices of stocks, which either rise or, vice versa, go down. As all of us know, stocks are the shares of ownership in a company, and investors trade them in stock exchanges (like New York Stock Exchange & Curb Exchange, later known as American Stock Exchange) for getting profit either from the growth or decline of their stocks. Some decades ago the only way to trade shares were physical trading floors, where people used to gather together and negotiate stock prices. The situation has quite changed with the development of Internet, the result of which Internet-based stock exchanges have developed, making the process of trading much easier.
So, what is a CFD? CFD stands for Contract for Difference: it is a contract between two parties, buyer and seller, who speculate the price changes of the underlying asset. What makes it different from other types of trading is the fact the fact of physical ownership of an asset is absent. During the last decades CFD trading has become very popular among traders. For better understanding the reasons of the growing popularity, below all its important distinctive features will be presented.
High leverage: In CFD trading investors can trade with high leverage up to 1:400. IFC Markets offers 1:40 leverage for CFDs on stocks, which is one of the highest leverages in the market of CFDs on stocks. Absence of tax: As investors do not actually own the underlying instruments, they do not have to pay a stamp duty, which is 0.5% on the value of each trade: traders used to avoid trading stocks because of this reason, as it was not cheap at all.
Ability to go long and short: An investor may go long if s/he believes the market price will go up or may go short in case s/he assumes that the market price will fall. Thus, CFD trading is very flexible and it gives opportunity of benefiting from any move of the market. More important is the fact, that investors have unique opportunity to hold their short positions as long as they wish, as the time limit for it is Indefinite.
Access to different markets: Investors have an opportunity to enjoy large range of markets. IFC Markets provides its customers with wide range of instruments such as CFDs on Indices, Commodities, and Stocks. Thus, investors may trade from oil to corn upon their preference and do not be limited with the number of instruments, as the number of CFDs exceeds 100.
The factors, listed above, have led thousands of investors to prefer CFD trading to traditional trading in exchange markets. There are assuredly traders who prefer traditional trading method in exchange market, but recent developments have shown that CFD trading is becoming more and more popular among investors due to the benefits that it provides.

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