why should a trader choose to trade shares CFDs?
Trading shares through Contracts for Difference (CFDs) can be appealing to traders for a variety of reasons, although it’s crucial to acknowledge that CFD trading introduces its own set of challenges and intricacies. Here are some potential motives that may drive a trader to opt for CFD trading on shares:
Leverage
CFDs provide traders with the ability to gain increased market exposure while investing a relatively smaller amount of initial capital. Leverage, a key feature of CFD trading, empowers traders to manage larger positions compared to conventional share trading. Nonetheless, it’s important to acknowledge that higher leverage not only enhances potential profits but also exacerbates the magnitude of potential gains and losses.
Short Selling
CFDs offer traders the opportunity to capitalize on declining share prices by engaging in short-selling. Unlike traditional share trading, where owning shares before selling is a prerequisite, CFDs allow traders to speculate on price decreases without the necessity of owning the underlying shares.
No Ownership of Underlying Asset
CFD trading eliminates the need for owning the physical shares, which can be beneficial for traders seeking purely speculative trading. This approach avoids the complexities associated with actual ownership, including tax considerations and voting rights.
Liquidity
CFDs based on shares typically offer high liquidity, similar to the underlying shares, ensuring that traders can readily enter and exit positions as needed.
Diversification
CFD brokers commonly provide an extensive selection of shares from diverse markets, enabling traders to achieve portfolio diversification across multiple industries and geographical regions.
Lower Fees
Engaging in CFD trading could result in lower commissions and fees in comparison to conventional share trading, potentially offering a more cost-efficient option for traders who make frequent transactions.
Access to International Markets
Through CFDs, traders can tap into a diverse range of shares across global markets, providing them with expanded trading prospects beyond their local stock exchanges.