Know the difference and make a smart investment decision.
With iForex, you can trade Stock Index CFDs in a form of CFD.
CFD stands for Contract for Difference, and it is available for trading with online brokers(Market Makers) but not with stock brokers.
There are many differences between CFDs and real Stock tradings.
How CFD trading works?
CFD is carried by OTC trading with brokers.
OTC stands for Over-The-Counter and it means that a trade is carried between traders and brokers, but not traders and the real markets.
So in case of real stock trading, you are trading with other share holders or the so called stock market. Stocks will be actually exchanged with its right of ownership and you will have the actual underlying instruments.(in this case stocks)
But in case of Stock CFDs, you will trade these stocks in a form of CFD with brokers but not with the real stock exchange market.
So basically you will be trading stocks virtually but that will charge/credit actual money when closing positions. If you buy a stock, the broker will sell the same stock at the same time.
CFD trading is a OTC trading, meaning that you will be trading with broker in a market created by the broker. That market is not a market regulated by any entity but only the broker, in order to provide another new financial product for investors.
You can profit from falling prices
One biggest merit of trading CFDs is you can generate a profit by the difference of prices, also the falling prices.
In the actual stock market, no one makes money by falling prices but CFD is different. You can have a buy position or sell position at anytime and you can close them at any time as long as the broker sends you price feeds.
CFD product is originally created for stock investors to moderate the risk of falling prices in stock markets.
iForex does not allow arbitrage tradings(including hedging arbitrage) though you can make a profit by falling prices of stocks by selling stocks with iForex.
No ownership but dividend/bonus
Another thing that is different from the real stock market would be the actual ownership of the underlying instruments.
As CFD is OTC derivatives created by the brokers, you cannot trade actual stocks of commodities with these brokers, but you can exchange the prices on the web and make profits.
So buying a stock or selling a stock CFD does not affect the actual ownership at all.
But still you will get the dividend/bonus payments as swap points to your trading accounts.
All these dividends are calculated exactly same as the real underlying stock markets and you will be credited for the dividend payment if you hold a buy position, and you will be charged for the dividend payment if you hold a sell position.
Trading CFD means that you are exchanging prices of these instruments, but not the actual underlying physical instruments.
So by trading CFDs, you can even eliminate many costs such as commissions for agencies, delivery fees and taxes etc.
All commissions are included in the spread by iForex.
If you are not so interested in the actual ownership of stocks, CFD trading may be the best stock trading solution for you.
iForex offers one of the largest number of CFDs(more than 400 symbols) in the world.