You may know that today there are numerous types of financial trading. In this post we are going to talk about benefits and drawbacks of such types of financial trading as CFD or Contract for Difference and shares trading. We are going to look at them from several different perspectives.
To star with let’s talk about the way these two types of financial trading can be used in a short selling. I want you to know that both CFDs and shares can be short sold. Nonetheless the process is often much easier with CFDs. The cause is that short sell transactions can easily be done on-line rather than over the phone. You need to understand that short selling is quite complicated and uneasy easy process and it should be controlled directly. In this type of sales there is the necessity of reporting which need to be disclosed via tagging short orders executed on the exchange.
Looking at CFD from the perspective of the short sales, we can see hat CFD providers also have short sale disclosure requirements. However, they aren’t required to tag short deals as they often pre borrowed stock to cover any short sales. In other words the CFD providers have covered their traders short positions before you even place the trade.
Next we are going to draw our attention to the costs of both CFD and shares trading. Even though you may be told that CFDs are cheaper to trade than stocks, this isn’t always true. As a matter of fact financing plays an essential part in CFD trading but numerous investors do not concentrate on this info, considering it inconsistent. Moreover, if you do some calculations, you’ll see that CFD trading requires much fees to be paid that the shares trade. Additionally, if you decide to trade with a high leverage and fail, you may have huge financial losses. So what should you do not to lost a lot trading CFDs? It’s better to pay for your position outright and pay a higher upfront brokerage cost, this seams to be more economical.
To sum it up, it should be mentioned that all in all CFDs can naturally be a cost efficient trading tool. Nonetheless, you need to understand that it can be profitable only when positions are held open for a rather short period of time. And, as for stock positions, they can be held open for as long as you want without the necessity of paying huge fees. Indeed when you trade shares, you only have to pay the initial transaction cost. There is one more thing to consider here, you don’t have to pay any GST on your trading charges in CFD. Finally, when choosing the type of trading that suits you the most, you may find it helpful to take into consideration the facts given in this post.