3 Reasons Why Online CFD Trading Is Better Than Regular Stock Investing

Trading on the Internet in contracts for difference has become very popular in many countries such as Australia, Great Britain, Ireland and Singapore (although not in the United States because they are not allowed). More importantly, many investors now prefer online CFD trading is dealing with conventional stocks. There are 3 main reasons for this:

First, the CFD only require the investor to pay a small margin payments in lieu of the full value of investments. To understand this, consider an investment in ABCXYZ Corp. of 300 shares. If the current stock price is $ 1 then, traditional stock investor will have to stump up $ 300 to determine its position. CFD trader on the other hand will only have to pay the necessary edge that can be as low as, say, 10% for example. In other words, they will only pay $ 30 for their investment.

This kind of used margin is clearly very attractive to many people, but it also carries risks that need to be aware. If the stock price drops, then the investor could end up due to more than the original amount invested. If this happens, a stockbroker, will make "margin calls" seeking more money. If you can not pay then you're in trouble!

Second, contracts for difference allow investors to "short" positions in the stocks. This means that you can benefit and make money from falling prices. Instead of buying the $ 70 and sells for $ 100 to $ 30 profit per share, short position for the opposite way round. You would sell short the shares at, say, $ 100, and if things go well, then the share price fall to $ 70. You can then buy back the lock-in $ 30 profit.

If you're new at this, then it is a good idea to read the above explanation again until you understand. Shorting stocks can be a tricky thing to get your head around to begin with. But it's really not that hard once you get used to it. Just as with margin payments, you must be careful and know what to do with shorting. This is because, in theory at least, you can lose an unlimited amount of money! To see why this is the case, imagine what would happen if the stock price by the company short doubled or tripled. You would be forced to buy back shares at a much higher price, which will lose a lot of money. Since there is no upper limit for share price, your losses can also be unlimited.

A third reason why CFDs are better than regular stock investing has to do with tax breaks. This only applies in some countries differs from country to country. Currently, tax credits are available in the UK and Ireland, for example. In these countries do not have to pay tax on the purchase of shares when using CFD as it would normally have to do with traditional stock investing.