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In the following post we are going to talk about two ways of financial trading: CFDs and shares. In addition we are going to compare these two methods, trying to see the benefits of one over another.

These days there are plenty of traders thinking, that CFDs have many benefits over shares. Anyhow, you can’t be sure that people making such conclusions are experts in both CFDs and share trading. In fact when reading such comparisons nobody questioned whether or not the people who write these posts are experienced in this sphere investors. Moreover, we don’t know whether they have any experience in both Cfd and shares trading or not.

Let’s start from the fact that CFDs and equities differs greatly not only in the manner they work but also in how they’re traded. Primer differences is that CFDs are an over the counter or OTC instrument. This means that your trading are usually not conducted on an exchange but rather with the CFD trading company that you are dealing with. Anyhow, when talking about shares trading, here it should be said that this financial instrument traded on an exchange. This implies that you are buying and selling off other people in the market with your share broker simply acting as a conduit providing you with a gateway to the share market.

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After that, let’s have a look the differences in the trading processes of CFDs and shares trading.
Let’s begin our comparison from one of the most apparent differences between both products is the way they are settled. I want to admitthat whenever you buy equities on the stock exchange you do not have to pay for the stock for three days. But on the other hand if you sell equities you do not receive any dividends for 3 days. However, when buying and selling CFDs there isn’t a clearing house involved. The thing is that the transaction is OTC, alternatively speaking the rules here are set by your CFD provider, because CFD companies as a rule don’t like to risk and settle a trade. What they will do is ask for some cash at the beginning of the trade.

The next important and obvious difference between CFDs and Shares trading is the notion of leverage. In CFD you have the option of leverage, this implies that for quite a little outlay you are able to operate large sums of money on the market. Anyhow if you decide to use leverage, you need to understand that even though margin can work in your favor, it could also work against you, this means that your earnings and your losses are both bigger. This implies that using leverage, you can lose more than your trading account balance.

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