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Three reasons why you should trade CFDs instead of buying shares

by , 25 June 2015

If you want to invest in shares for the short-term, have you considered trading contracts for difference (CFDs) instead?

Yes, CFDs come with higher risks as you're trading a geared instrument. But by opting to trade CFDs instead of buying shares, there are several benefits.

Read on to find out more…


CFDs versus shares


Here are three reasons why you should opt to trade CFDs instead of investing in shares…

Reason #1: Lower trading costs
When you invest in shares, you have to pay a lot of costs that are simply not applicable to trading CFDs as you don’t own the underlying share. For example, you don’t have to pay Market Transfer Tax or STRATE charges.

Trading CFDs is more cost effective. You’ll pay a lower commission to your broker than what you’d pay for investing in shares.

As you trade CFDs on margin, you only have to put down a fraction of the total value of shares you’re trading. This ranges from around 8% to 25% of the total cost. This means you can free up capital and put it to use elsewhere.

Reason #2: You still benefit from corporate action
If you decide to place a long CFD trade, you’ll still benefit from dividend payments, stock splits and other such events just as you would if you owned the shares.

Your broker will adjust your cash position to reflect such corporate action.

Reason #3: You can short CFDs
Unlike investing in shares, if you want to try to profit from the fall of a share price, you can with CFDs. You can place a short CFD.

This means that you’re in a position to profit in a rising as well as a falling market with CFDs. When investing in shares, you can only make a profit when share prices rise.

So there you have it. Three reasons why you should trade CFDs instead of buying shares.

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Three reasons why you should trade CFDs instead of buying shares
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