How to Trade Stock CFDs

Stock CFDs allow you to gain exposure to some of the most popular companies such as Amazon, Google and Microsoft by speculating on the share price movement.

With the increasing popularity of CFDs, more and more traders prefer trading stocks through CFDs instead of investing in traditional shares. This is due to the advantages of CFD trading such as leverage and the ability to go long and/or short.

Read on to learn all about stock CFDs, online shares trading and how to trade stock CFDs.

What are CFDs?

CFDs (Contracts for difference) are financial instruments that are used for online shares trading. With CFDs, you speculate on the fluctuations in the prices.

A Contract for difference is a mutual agreement between two parties to exchange the difference between the opening and closing price of an underlying asset. CFDs are derivative products because they enable you to speculate on the financial markets without taking ownership of the underlying assets.

Leverage (Leverage)

CFDs are leveraged products which mean that traders can trade on margin. Basically, you can enter a trade by paying just a margin of a contract’s value. You can invest a small amount of money (known as the margin) in order to control a significantly larger amount.

CFD trading allows you to open both long and short positions and gives you the opportunity to profit from markets that are falling in price as well as rising. This is because you don’t need to own the underlying shares when trading with CFDs.

It is very important to bear in mind that as well as having the potential to magnify your profits, leverage will also magnify your losses if the market moves against you.

What are stock CFDs?

Stock CFDs are traded specifically on the shares of publicly listed companies. When you open a position with stock CFDs, you agree to trade the difference in the price of the company’s shares between the time you open and close the contract.

CFD markets list two prices. The first is the selling price or the bid price, and the second is the buy price (ask price). The difference between the buy and sell prices is called the spread. Your CFD price is based on the price of the underlying instrument.

If you think the price of your stock CFD will increase in value on the stock exchange, you buy (go long on the underlying stocks). If you believe the market of a particular stock will decrease in value, you sell (go short).

Whether prices are rising or falling, there is an opportunity to profit with CFD trading.

The best stock trading platform

MetaTrader 4 is considered the best day trading platform for beginners, providing all the essential tools that traders need for successful online trading. It can be easily customised based on your trading needs and trading requirements.

Traders consider the MT4 as the best stock trading platform for the following reasons:

User friendly

MT4’s user-friendly and simple interface makes it suitable for all types of traders. With just a few clicks, traders can access basic information such as charts, indicators or prices.

A reliable stock trading platform

The MT4 is a reliable choice for traders all around the world due to the platform’s stable performance and safe operations.

Easy download

Another reason why MT4 is considered the best stock trading platform is that it can be easily downloaded on any device. Traders can download MT4 on Windows, Android, iPhone, and any web browser in just a few easy steps. They can just log in to their trading account and set the platform up and manage their positions even on their mobile device while they are on the go.

Benefits of trading stock CFDs?

People trade stock CFDs as a way to gain exposure to global economic growth, as well as individual companies.

We have already examined leverage for stock CFD trading, but let’s look at some other advantages of stock CFDs.

CFDs can be traded both long and short. This means you speculate on both rising and falling share prices. For example, if the news is released that you think will negatively affect the share price of a specific company, you can open a short position using stock CFDs. If the company’s share price falls, you will profit from this downward price movement.

Leveraged derivatives like CFDs (Contracts for Difference) allow you to speculate on the price movements of the stocks without physically owning the stocks. You only need to put down a small deposit to gain full market exposure. As already mentioned, even though leverage provides the potential to magnify your profits, you can also magnify your losses.

Stock CFDs are also a convenient way to hedge a long-term investment portfolio by taking short-term positions in the opposite direction through a period of volatility or uncertainty.