Are Stock CFDs Suitable for Your Trading Style?

In particular, when deciding whether to stick to stock CFDs for your trading style, you need to understand the unique features of these contracts and how they fit with your goals and risk tolerance. Stock CFDs refer to Contracts for Difference which permit traders to speculate on the changes in stocks’ prices without actually owning the underlying assets. They are flexible but at the same time, bring about some risks that you have to carefully manage.

Stock CFDs are an excellent tool for active traders who can’t get enough of short-term speculation. The contracts can help you benefit from both the rising and falling markets. If one thinks that the stock will go up, then he will go long, while if one believes it should decline, he will short the stock. Such flexibility makes stock CFDs very appealing to traders who enjoy trading in high volatility markets and believe their trading is based on the strict analysis of techniques that are supported by technical analysis, chart patterns, or news-driven events.

Although profits can be significant, keep in mind that high risk is associated with stock CFDs, mainly because of leverage. For instance, leverage allows you to control a larger position with a minimum down payment. However, a slight loss or erratic change in price can easily multiply your losses. Clearly, this may not appeal to investors who are risk-averse or conservative traders. However, when it comes to traders who would be willing to take up more risks or even good risk managers, stock CFDs are highly effective for making some form of money.

The greatest advantages of stock CFDs are that it is possible to get exposure to global markets. Unlike the traditional stock trading that requires a person to buy and sell individual stocks, the stock CFDs enable you to speculate on the global stocks from the largest index to the smallest emerging one. It allows for diversification of the trading portfolio into even more possibilities. Stock CFDs can provide you with the opportunity to trade if you enjoy exploring different markets and expanding beyond traditional local opportunities.

The attractiveness of stock CFDs to traders who avoid keeping stocks for long periods can also be attributed to the reason that these contracts, in most cases, are applied for short-term trades. Thus, one may easily take advantage of a price movement without considering long-term ownership in stocks or even dividends apart from voting rights.Their trading styles often characterize rapid entry and exit, for which stock CFDs offer an easy means through which profits are seen as prices rise and fall.

But if you are looking for a long-term investment plan, then stock CFDs are definitely not your bet. Stock ownership usually accords a traditional stockholder long-term capital growth potential and dividends and the ability to hold assets without being held hostage to daily market fluctuations. Stock CFDs, therefore, may not appeal to an investor adopting a passive investment strategy.

Ultimately, the decision to use stock CFDs will depend on your risk profile, trading preferences and time commitment. An example would be an active trader with good market analysis and risk management – he will love the idea of generating large-scale profits from trading stock CFDs; however, if you want less risk and have a preference towards stability in investments, traditional ways of trading stocks are most likely what you should choose. You will be in a position to determine whether to use stock CFDs if you assess your goals with care and consideration.