Trading Share CFDs
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 their 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 the 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
Share CFDs Advantages
Opening a position on a Share CFD offers great advantages to its holder including:
(1) CFD trading offers exemption from taxes
(2) You may leverage your trades 50:1 or even more and not up to 2:1 as in the case when trading with common stock-brokers.
(3) You may trade Share CFDs using very advanced platforms taking advantage of extended charting capabilities, trading on charts, etc.
(4) CFD trading offers a lot of different trading orders, very useful when trading shares intraday.
(5) The cost of trading Share CFDs is considerably lower than trading shares via a common stock-broker.
(6) Share CFDs traders can bet on both the market’s directions, they can go long or short.
(7) The same that trades shares can be also used for trading other asset classes such as Indices, Foreign Exchange, Crude Oil, Gold, and Commodities.
Share CFDs Other Characteristics
Here are some more characteristics of Share CFDs:
(1) Opening a position on a Share CFD does not make you the real owner of the underlying share and therefore you are not entitled to vote at the company’s meetings.
(2) Some Share CFDs are designed to pay dividends, others not, check below for more information.
(3) In the case of a share split, whatever happens to the underlying share happens also to the Share CFD. If one share is given for every existing share then a CFD trader receives one more CFD contract for every CFD contract his hold. The impact remains the same.
Share CFDs Dividend Policy
Shares pay annual dividends to its owners. At the beginning of the ex-dividend day, the amount of dividend is deducted from the share’s price. Therefore if you are holding a share CFDs position during the ex-dividend date:
- If you are Long: The dividend is received
- If you are Short: You pay the dividend
Practically the effect is neutral as the payment of the dividend offsets the movement of the underlying share’s price no matter if the position is short or long.
Shares Trend Well
Shares constitute a very volatile asset class. The valuation of a listed corporation may alter dramatically due to a great number of reasons. For example merging/acquisitions, new patents and new licenses may double the price of a share. From a technical analysis point of view, shares trend very well. Share-traders may easily follow strong trends by taking advantage of the leveraged nature of CFDs. Furthermore, traders can follow mid-trend by opening positions on CFD Futures. Trading CFD on Futures does not involve overnight charges. Therefore a CFD position becomes free of overnight charges until the underlying Futures contract expires. Usually, a CFD on Futures expires after 2-3 months. CFD traders can achieve huge profits via trading this instrument given that:
(i) They can identify a strong trend
(ii) They will not be stopped out
What Affect the Valuation of Share CFDs?
As it was mentioned before, Share CFDs imitate the price changes of particular share prices. Therefore whatever affects the price of a share affects identically the price of a Share CFD. Here are some important factors affecting share prices:
(1) The value of the Underlying Company
The most important factor for the value of a corporation is its ability to create cash-inflows and earnings. Earnings are transformed into dividends and high dividends make shares attractive to more investors. Other things matter as well, for example, strategic issues or risk issues. There are tens of different financial ratios to evaluate the value of a company including P/E, P/E/G, P/Bv, P/S, and many more.
(2) The General Market Conditions
The general market conditions can have a dramatic effect on the valuation of a share. We have seen valuations of P/E=500 in many Nasdaq shares during the year 2000 just because the general market conditions were great.
(3) Difference between the Value of a Forex Rate
If you trade a share that is listed in a Foreign Stock-Exchange then the price of this share is adjusted by a Forex rate. Forex rates can fluctuate heavily and these fluctuations may have a great impact on the share’s price.
CFD Brokers and Shares CFD Trading
Here is a regulated CFD provider offering Shares CFDs.
· Precious Metals
· World Shares
Hundreds of differest stocks:
■ Mobile Traders
Free VPS Server for deposits of more than $5,000
$200 Minimum Deposit Amount
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George Protonotarios for CFDagent.com (c)