Reason to trade CFDs #1: It costs you less than investing in shares
When you trade CFDs
, you don’t own the underlying share. Due to this, when you trade CFDs, you don’t have to pay a number of the costs that apply when you buy shares.
This means you don’t pay stamp duty, STRATE and securities transfer tax.
The brokerage is also cheaper than investing in shares. You should be able to find a broker that charges less than 0.5%.
Reason to trade CFDs #2: They have a money multiplier effect at work
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CFDs are geared instruments. This gearing multiplies the price movements in the underlying shares, boosting your potential gains.
But this also works for your losses. This is why it’s vital you manage your risk effectively when trading CFDs.
If you trade CFDs with a gearing of 10, it means for each CFD you own, you can benefit from the movement of ten shares.
Reason to trade CFDs #3: You can still profit if the price of a share falls
As well as going long (buying CFDs), you can also short them. This means if you think a share is due a fall, you can short it. If it falls in value, you’ll make a profit.
This works in just the same way as buying a share, you just sell first then buy back.
Reason to trade CFDs #4: No expiry dates to worry about
Unlike other trading instruments like single stock futures, CFDs don’t have a close out or expiry date.
This means you don’t have to worry about a trade closing out automatically. But you still need to be aware of anything that will affect the underlying share you’re trading, such as a suspension or a cautionary announcement.
So there you have it. Four reasons why you should trade CFDs instead of investing in shares.
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