Differences in Trading Common Stocks and CFD Shares

Differences in Trading Common Stocks and CFD Shares:

1. There is no DoM in CFD Stock Trading : When trading ordinary shares, traders can see how much price and volume on the buy or sell side of the stock in a table ( Depth of Market / DoM ). However, CFD stock traders cannot watch it, because they do not buy or sell physical shares.

   These differences bring positive and negative consequences respectively. In ordinary stock transactions, each order must be queued in advance according to the buy and sell orders that appear on the exchange. Whereas CFD stock orders will be immediately executed without queuing at all.

2. CFD Stock Traders Cannot Get Dividends: There are two types of advantages in ordinary stock trading , namely capital gains and dividends. Capital gains are obtained from the difference between the selling price and the purchase price of the shares, while the dividend is the division of the company's profits regularly (usually once a year) that is proportional to the ownership of the company's shares. Therefore, shares can be used as a vehicle for trading (short term) or investment (medium-long term).

   Trading CFD shares only targets from the difference between the selling price and the buying price of the shares. They do not own the company's shares that they bought, so they are not entitled to get dividends. Therefore, CFD shares are not a good investment asset for the long term and are more suitable for short-term trading only.

3. Capital for Trading CFD Shares Lower: CFD shares are one of the leveraged financial products provided by CFD brokers, not stock brokers. Because it is supported by a fairly large leverage facility, the trader only needs to provide a small number of funds for trading CFD shares, rather than trading ordinary shares.

4. Trading CFD Shares Spread: In ordinary stock trading , traders only need to pay a fixed percentage fee to the broker. The share price that applies when buying or selling, is the market price. However, in CFD stock trading , buying and selling will also be subject to a certain amount of spread. That is, traders need to pay broker fees plus spread when trading CFD shares.

   Fortunately, CFD stock brokers usually charge lower fees than ordinary stock brokers. Therefore, the cost of trading CFD shares may still be lower than the cost of trading ordinary shares. However, traders need to be aware that spreads may affect entry, stop loss and take profit levels in CFD stock trading.