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What is stock CFDs trading?

Stock CFDs, unlike other financial instruments, offer an investment opportunity through the purchase of shares.

Once you decide to invest in stocks following this new trend in trading, there are some things that you need to know before making any decision. Your goal is to achieve high returns for the minimum investment possible. It is necessary to have an understanding of the industry, its potential and how you can take advantage of it.

Most people believe that stocks are one of the most popular forms of investments; however, they tend to be expensive and only accessible to large investors and corporations.

Also, the amount of information is overwhelming; there are countless articles and research papers that you can read for months and still not understand something essential about this market.

The most important thing to understand before investing in stocks is that it is a very risky venture, so only invest what you are willing to lose. It's not uncommon to see new investors buying stocks worth thousands or hundreds of thousands of dollars only to end up losing everything.

This may not be the worst thing that could happen, but it is a very important lesson that everyone should learn prior to investing.

If you decide to invest in stocks despite its risks, the next step before doing so is finding out what stocks are and how they work.

What are the major world stock CFDs?

Common Stocks: The most basic stock, it is the primary form of ownership in a company. Common stocks are traded on exchanges such as NYSE and NASDAQ. Each share represents an equal stake in a company no matter what type of share it is (A, B etc.).

Stock CFDs: Under this category, you can invest in any stock from the world without buying the underlying asset.

Preferred Stocks: Preferred stocks have a special status amongst stocks and are considered to be high-quality investments. They're paid dividends before common shareholders who then receive an amount equal to all of their dividend payments plus any remaining share of earnings.

How is it that stock CFDs can be so profitable?

First of all, the main difference between stock CFDs and real stock is that when you buy a CFD, you don't buy any asset; you only buy a contract that goes up and down according to the value of the asset.

Another main feature of stock CFDs is leverage, which means that the amount you can risk is more than what you invested. For example, if you invest $1,000 in a stock and it goes up 5%, your investment will be worth $1050; however, if you invest $1,000 in a stock CFD and it goes up 5%, your investment will be worth $10,000 (i.e. 100% more).

The leverage advantage is also what gives rise to the high risks involved with stock CFDs; for example, if a stock CFDwere to lose 10% of its value on one single day, your investment would be worth $900.

The leverage is the main reason why stock CFDs are so popular and profitable despite the risks involved.

What moves stock CFDs market prices?

The price of a stock CFD moves in the same direction as its underlying asset. For example, if you invest $1,000 in an Apple stock CFD and 1 share of APPL were to become $10, your investment would also be worth $10,000 (i.e. 100% more).

Stock are based on stocks rather than indices. This means that they are more volatile but also offer higher returns compared to indices such as the S&P 500 or NASDAQ 100.

Examples of stock CFDs: Apple (AAPL), Google/Alphabet (GOOG), Facebook (FB).

Benefits of stock CFDs trading

#1 Accessibility

Stock CFDs are not that different to real stocks. They can be traded with similar commissions and fees; the only difference is that you don't need to own a stock in order to trade it (although having one could further enhance your trading experience).

If you're new to stock investment, stock CFDs are the ideal starting point as they are very similar to the real thing, just without all the effort and costs.

Stock CFDs can be traded from anywhere in the world, whether it's a desktop computer, smartphone or tablet. This gives investors access to global markets at any time and with limited risk.

Stock CFDs make trading the market easier than ever before.

#2 Hassle-free investment

Buying shares in a company can be a hassle as you need to keep track of them on your own. Furthermore, if you don't understand the process it's hard to ensure that everything is being done correctly.

Stock CFDs are traded just like regular stocks; all you have to do is open an account, deposit your money and start trading.

You can enjoy those benefits on any stock in the world with Global Prime's CFDs services.

#3 Profits for beginners

Stock market investing doesn't require any special skills; it is a matter of buying and selling assets when the price is favourable.

Stock CFDs are even less complicated as they do not require any knowledge about how assets work, what earnings to expect or even whether the stock market will go up or down.

Stock CFDs are designed for investors that want to get into the stock market but don't want to deal with the paperwork.

#4 Trading on margin/leverage

Stock CFDs also allow you to leverage on your investment; this means that you can earn more returns than the actual value of your fund (expressed as a percentage). For example, let's say that you invested $1,000 in a stock CFD based on Apple. The stock's price increases by 15% in a few weeks meaning that you are now holding $1,150 worth of assets. If the broker allows 10:1 leverage, you can then sell your shares and make $15 more without having to deposit any extra cash.

Stock CFD markets usually have their own leverage systems based on specific assets. These usually range from 1:2 to 20:1 for both long (buy) and short (sell) trades. The leverage you can use depends on the current price of the asset; if the asset is worth less than your investment, then you will be able to use more leverage. This means that even with small amounts of capital it is possible to achieve high returns on your investment.

Stock CFDs are a very different way of profiting from the stock market and have many advantages over buying or selling real stocks. For that reason, they are slowly gaining in popularity as an alternative to physical assets for both investors and traders.

Risks of stock CFDs trading

#1 Risk of losing money

Despite their advantages over physical assets, stock CFDs do have some disadvantages. To begin with, you need to open a trading account before you can start using them.

Stock CFDs are also like physical assets in that you can lose money depending on how the stock price moves. If you plan to hold onto your shares for an extended period of time, this disadvantage is usually less worrisome as fluctuations tend to even out over time. However, if you are using short-term strategies then it is possible to make a lot of money but also lose a lot if the asset's price goes down.

#2 Lack of liquidity

Another disadvantage is that your investment might not be as liquid as you would like it to be. This means that if you need to get your funds out and there are no buyers for your stock, then you will have to wait until someone is willing to purchase your assets. This usually means that you might have a difficult time getting the money that you need at short notice.

Stock CFDs also differ from physical stocks in that they are traded differently; for example, some stock CFD markets have restrictions on how often one can buy or sell an asset while others might not allow you to close your trade before a certain date. Although these are usually small nuances, it is important to be aware of any special trading rules in order to avoid losing money.

#3 Stock CFD rates and fees

Stock CFDs have one advantage over physical securities in that they provide much better rates for the investor; this is because most markets do not include commissions on your trades. This is usually because the market does not actually take ownership of any assets (instead, you are just trading contracts from one person to another) so there is no actual 'buying' or 'selling' involved.

Stock CFDs also have their own rates that need to be considered before using them as an investment tool. These usually depend on how much leverage you use (as mentioned above) and are often expressed as a percentage of your investment. For example, if the maximum leverage is 10:1 and the rate is 0.6% per trade, then this means that for every $1,000 worth of assets that you buy or sell using leverage, you will pay $6 in fees.

Stock CFD rates are usually higher than that of physical assets as there are no commissions on trades and many markets require you to hold the assets for a longer period of time (to prevent trading manipulation).

Now that you have a better understanding of Stock CFDs Trading - consider Global Prime for your next trade.