Trading Share CFDs

 CFDs on Shares

Trading shares is a very popular practice for more than a century. Share CFDs are financial instruments that mirror the price of a particular share by offering great advantages such as high capital leverage, advanced platforms, multiple orders, tax exemptions etc.

Trade any Market and Any Market Direction

CFD providers offer shares from all around the world:

  • US / Canadian Shares
  • European Shares
  • Asia / Oceania Shares
  • South-American Shares

Share CFDs offer trading in both market directions (profit from both bull and bear markets).

 

Share CFDs Explained with a Simple Example

CFD contracts or "Contract for Difference" can be used for trading popular shares. CFDs offer many advantages to its holders without imposing them high deposit requirements. Let’s suppose that a CFD trader wants to invest in the Apple stock (AAPL) before the release of the new iPhone. This trader wants to buy 1,000 shares of AAPL worth $100,000. The Apple share is trading at $100. He has two options in order to trade the Apple stock:

(1) He can buy 1,000 shares of Apple directly from his stock-broker. In this case, he will have to deposit at least $50,000 as his stock-broker which offers him maximum leverage 2:1.

(2) He can buy CFD on Apple Share. In this case, he will use leverage 50:1 and he will have to deposit $2,000 as margin to his CFD provider.

Comparing the two options

(i) The difference in margin requirement is great. Many traders do not have $50,000 free for trading but most traders can afford to deposit $2,000

(ii) The difference in commissions paid is great too. Trading CFDs is considerably cheaper than trading physical stocks

(iii) CFD position offer tax exemptions

Create Free and Export Indicators for MT4, MT5, or TradeStation to trade Forex, Shares, Indices, and Commodities

Trading Precious Metals and Gold CFDs

CFDs on Gold 

There are two main categories of metals, the industrial metals and the precious metals. A key difference between these two categories of metals is that precious metals do not react with oxygen while industrial metals do react with oxygen.

The three major precious metals include gold, silver and platinum. CFD brokers trade these three precious metals and some of them offer also palladium. The main industrial metals include copper, aluminium, zinc and lead. CFD brokers usually offer only copper.

Industrial Metals versus Precious Metals

The price of an industrial metal reflects the overall state of our world’s economy. The stronger the economy is the higher the investment for building new houses and infrastructure. The higher the expenditure for housing and infrastructure the higher gets the demand for industrial metals, so gets the price. But as concerns precious metals this is not always the deal. Precious metals tend to trade within longer cycles that usually last a decade. The precious metals are used mostly as investment assets (35%) and as raw material for jewelry (45%). Normally they should reflect the condition of our world’s economy. But on the contrary the price of precious metals tends to peak during financial and political crisis, wars etc. Gold is seen by investors like a ‘safe heaven’ during economic crisis.

Industrial Metals and Major Exchanges Warehouse Suppliers

Traders of industrial metals may use a simple technique in order to evaluate the real supply and the demand for a particular industrial metal. The two major metal-exchanges (COMEX/CME and LSE) offer information about the warehouse supplies.

Therefore by examining the available stock:

(i) If the stock levels higher then the demand is lower or the production is higher

(ii) If the stock levels lower then the demand is higher or the production is lower

 

The Importance of Gold

Gold is by far the most important precious metal for both trading and investment purposes. In the globe there are 156 thousand tons of Gold available today while only 2.5 thousand tons are mined yearly. Gold has been the dominant currency for exchanging goods and service since the beginning of civilization.

J.P. Morgan said in 1912: "Gold is money, everything else is credit"

The Main Characteristics of Gold as a Precious Metal

Here are some key characteristics for Gold:

(1) Gold has unique characteristics as a metal

Gold is characterized by two unique features:

(i) Gold durability over time is extraordinary as it doesn't corrode

(ii) Gold may conduct heat and electricity better than copper.

These two characteristics make gold an ideal metal for electronic applications (mobiles, micro-processors, etc.)

(2) Gold as a Hedging Tool against Inflation

Gold acts historically as a hedging instrument against inflation. As the US dollar falls in value due to inflation, gold which is priced in US Dollar gains value respectively. The historic price of gold helps economists to calculate past values in today’s prices.

(3) High Demand for Gold from Jewellery

Jewellery as an industry is the traditional buyer of Gold. The demand from Jewellery accounts 45% of the aggregate demand for gold each year.

(4) Gold is highly used as a Reserve Currency

Every Central Bank in the world uses Gold as a reserve currency. Moreover commercial banks, investment firms and many individual investors include gold assets in their portfolio. The existence of Gold leads to portfolio diversification.

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