April 25, 2016

Question:Stock CFDs are not "Stocks" - 3 differences that you should know

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You are not entitled to have an actual ownership by trading Stock CFDs with any online brokers.

But it is also the merit of trading CFDs as it reduces the costs of trading by trading Shares in a form of CFD.

What is CFD?

To understand why you will not be given any ownership by trading CFDs, you will first need to know how the CFD tradings work.

CFD is an OTC derivatives product, and OTC stands for Over the counter.

The trading of CFD is made between traders and brokers over the counter, but the real stock market in this case is not related.

So you will be just exchanging the prices with your broker in the market created by the broker.

Long story short, when you buy a stock CFD, your broker sells the same stock CFD at the same time and the same quantity. Thus you can make a profit from the difference of prices including falling prices.

CFD itself is a product created by each broker, and basically the broker will rule the CFD market as they want.

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What is different between CFDs and actual stocks for traders?

There are many difference between Stock CFDs and the real Stock exchange.

1. Low costs

CFDs reduce many extra costs which normally incur when trading real stocks with stock agencies.

Like delivery fees, commissions by agencies and other management fees are eliminated for CFD tradings, and all the cost for tradings are included in the spread.

2. High Leveraged

The risk is managed by the brokers and you can trade with small margins for large amount of stocks.

With iForex, you can trade with 0.5% of margins, so leverage of 1:200 for some CFD products.

You will not need to have huge funds to trade stocks anymore, but only partial margins.

3. Dividend/Swaps

Although you will not have the actual ownership of the underlying instruments, you will still be paid for the dividend/bonus payment for share holders.

The payment will be made according to the actual dividend in the stock market and it is processed as swap points(over night charges) to your trading account directly.

Generally speaking, if you have an open position over night, you will get paid for the dividend, and if you have a short position you will be deducted for the dividend.

iFOREX Official Website

What is the advantages of trading CFDs?

There are some merits of trading CFDs which are:

  • Low Cost
  • High Leveraged
  • Easy access to positions/funds

iForex is offering more than 400 CFD products with even better conditions than the actual stock agencies’.

If you are trading some stocks to invest, you may want to consider this better option for yourself.

Although iForex may be the best solution for CFD traders, but not maybe for Forex traders as the spread iForex offers is not the tightest spread in the industry.

But still you do not need several accounts to trade these financial products, but you only need one trading account to access Forex and CFDs.

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