CFD trading may be more expensive than trading regular shares. Spreads can affect CFD stock trading entry, stop loss and take profit levels.
Differences between Trading Common Stocks and CFD shares:
1.CFD Stock trading is not a DoM. Stock traders can see the volume and price of ordinary shares in a table (Depth of Market/DoM). CFD stock traders can’t monitor it because they don’t buy or sell physical shares.
These differences can have both positive and negative effects. Each order for ordinary stock transactions must be queued according to the buy or sell orders. CFD stock orders, on the other hand, will not need to be queued.
2. CFD Stock traders cannot get dividends: There is a two-fold advantage to ordinary stock trading. These are capital gains and dividends. Capital gains are the difference in the price of shares and their purchase price. Dividends are the portion of company profits that are divided regularly (usually once per year), which is proportional to how many shares the company owns. Shares can be used for investment (medium-long terms) or trading (short term).
CFD trading targets only the difference in the selling and buying prices of shares. They don’t own the shares of the company they purchased, and therefore they do not have the right to receive dividends. CFD shares, while not an investment asset that can be held for the long-term, are better suited for trading short-term.
3. Capital to Trade CFD Shares Lower: CFD share is a leveraged financial product offered by CFD brokers and not stock brokers. CFD shares are supported by a large leverage facility so traders only need to invest a few dollars to trade them.
4. Trading CFD shares Spread: For ordinary stock trade traders need only to pay a fixed percentage to the broker. The market price is the share price, which applies to buying and selling. CFD stock trading will require that buying and selling be subject to certain spreads. CFD traders must pay spread and broker fees when trading CFD shares. CFD stock brokers typically charge less than regular stock brokers.