Shares, also known as stocks, are one of the most well-known and popular forms of retail trading. They represent a small portion of ownership in a company and can be bought and sold on stock exchanges. In this article, we will explore two different ways to trade shares: investing and CFD trading.
Investing in stocks is a straightforward and traditional approach to trading. When investing, you buy a share in a company, and if the company’s value increases, your investment will increase in value too. Stockbrokers facilitate most retail investors, who use their services to buy and sell shares on their behalf. Stockbrokers charge a commission for their services.
One significant advantage of investing in shares is that you can receive dividends, which are a portion of a company’s profits paid back to shareholders. Companies usually pay dividends regularly, usually monthly, quarterly, or annually, and may pay special dividends on rare occasions. However, when investing in shares, if the value of your shares falls, you may still make a loss when pursuing a dividend strategy. You must also pay fees that can affect your overall profit.
It is possible to build a portfolio that only targets returns from dividends, seeking stable blue-chip companies that do not offer much growth but pay a portion of their profits to investors. This is known as a dividend strategy. Remember, though – investing always carries risk, and you must be prepared to lose money.
Share CFDs, or Contracts for Difference, are a different way of trading shares. CFDs enable you to speculate on a market’s price movements without owning the underlying asset. When you open an equity position with a CFD, you’re agreeing to exchange the difference in a stock’s price from that moment until you close your trade.
Each CFD contract you buy or sell represents a single share of the underlying market. Buying 500 Apple share CFDs will give you the same exposure as buying 500 Apple shares, while selling 1000 Tesco share CFDs is equivalent to selling 1000 Tesco shares. Like with investing, you’ll pay a commission to execute your trade.
One significant advantage of CFD trading is leverage, which can significantly reduce how much you spend to open a position. When trading CFDs, you only need to deposit a fraction of the total position size upfront. However, it is crucial to understand that leverage magnifies both potential profits and losses.
CFD trading is different from investing as you do not own the stock, and thus, you are not eligible for dividends. It is crucial to understand that while CFD trading can offer the potential for high returns, it also carries a high level of risk. Therefore, it is essential to research and understand the risks involved before you start trading.
In conclusion, there are different ways to trade shares, with investing and CFD trading being the most popular. Investing is a traditional and straightforward approach, while CFD trading provides traders with leverage and the ability to profit from the price movements of a stock without owning it. However, it is important to understand that all trading carries risk, and you should always do your research before investing or trading.
