Forex Trading Terminologies: Defining
Traditional Stock Markets against Stock CFD Markets
As a Forex trader, I am pretty sure that you are aware of the fact that traders can be involved in different markets such as the traditional stock market, forwards market or futures market. In this article, we will tackle the nature of CFD trading on stocks versus trading in the stock market. Keep in mind that the concepts which you are about to read could help you shortlist Forex Trading markets that suit your preferences.
Stocks and the privileges of shareholders
Since stocks characterize a security that represents the ownership of a part of a company, a shareholder (shares is defined as a unit of stock) is given the right to get a commensurated portion of the dividends. If you are a shareholder, it also means that you get to enjoy an opportunity to have access to the critical data that are exclusively disclosed to the company owners. Shareholders also have voices in Company VIP meetings and elections. They are also given the right to a share of the assets in case of dissolution of the company.
Traditional Stock Market Explained
Stock markets or exchanges are venues where traders can either sell or purchase company shares. Unlike online exchanges, the traditional market literally needs a space where brokers, buyers and sellers transact their business. Despite the presence of a physical market for stocks, the traditional stock market deals will not require you to know who you are dealing with. Thus, someone close or away from your location could buy shares through the market. Purchases for the traditional market works similarly like the bidding process. Traders would bid high if they believe that a particular company will earn well. They however bid downwards if they think that the company will not perform well. Naturally, stock buyers usually seek for low company rates and hope that they would be able to sell these shares once the company rates go up.
The Market for CFDs
With tons of readable materials about CFDs, it is very impossible for a trader not to know what it means. CFDs or Contracts for difference serve as an optional trading instrument. It allows them to view details of many types of assets such as stocks, forex, commodities, and even cryptocurrencies. As one type of derivatives, CFDs are traded with margins which act as deposits and also help determine the leverage of an account. Marginal trading therefore means that the broker is actually lending capital to his client and allowing him to trade with more capital than they have in their trading account. Thus, both gains and losses can be magnified. If gains and losses can be greater in CFDs, trading with this merchandise means that the risk factor is also higher than any other market merchandise. Short selling is also another enticing feature of CFDs. In terms of this option, CFDs are way better than traditional stocks selling because unlike in the traditional stock market where there is a very thin boundary between going long and going short, CFD market allows brokers to borrow stocks at a lesser price.Thereby enabling them to also offer cheaper short positions to their clients. Flexibility is the perfect word that matches CFD trading because this avenue provides a wide array of platforms to choose from. With CFDs, dealers can transact several assets using just a single CFD account. One forex pair market can actually allow a trader to transact 50 global equities, over 40 currency pairs, 3 energy contracts, 10 global indices, precious metals, and 7 major cryptocurrencies, all from one trading account.
CFD vs Stock Market in Summary
After laying down each card for both the Traditional Exchanges and CFD markets concepts, we can derive that Stock Market dealers have rights which CFD dealers do not enjoy. These rights however do not make Shares trading easy simply because the Stock Market is a strictly regulated platform. Stock exchanges are designed for traders with passion towards long-term investments, day traders, swing and medium-term traders. CFD stocks on the other hand is a convenient way for traders who are into marginalized and short selling.