CFD vs Share trading - Differences

Shares denote a small piece of ownership in a company. Major corporations have millions of shares you can buy or sell on regulated markets. The price of shares rises and falls based on supply and demand and other factors, such as the company's financial performance, executive decisions or announcements, and macroeconomic factors.

CFD is short for contract for difference. It is a financial derivative meant to track an underlying market. CFD share trading involves contracts that track individual assets on stock markets.

Unlike shares, CFDs do not represent ownership of a company. Instead, they merely mimic the price movements of the underlying asset. You do not purchase a CFD. Instead, you agree to pay the difference between the price of the stock when you open the position and when you close it. The price difference is calculated in points, each with a specific value.

If you open a position while CFD shares are trading and the underlying stock goes up, the broker will pay you the value of the increase. However, you must pay the broker if the underlying shares go down.

Frequently Ask Question

You can start CFD share trading by opening an account with us today. With TMGM, you can learn the nuances of CFDs with a demo account before you move to live trading.

When starting, you should select a platform (MetaTrader 4 and IRESS are excellent options) and ensure you know how to place orders, read charts and indicators, and use risk management tools.

When you start trading CFDs, you must meet your broker's minimum deposit requirements. At TMGM, you need $100 to open an account. The amount of capital will depend on your plans. If you are learning to trade, $100 is enough to start your career. However, you may need more if you would like to open larger positions and meet your broker's margin requirements.

When you trade with TMGM, you do not own shares. A contract for difference is a derivative that tracks the stock but does not give you any ownership rights. Unlike with options or futures, you do not have the right or obligation to buy or sell shares directly. CFDs merely track the underlying stock's price movements so that you can benefit from price movements without purchasing the shares.

There is no single correct answer to the CFD vs. share trading comparison. These instruments serve different purposes. Shares give you ownership of the asset, so you can enjoy benefits like dividends and long-term gains. CFDs do not have the same investing benefits, but they allow you to track the market with limited capital, so they are better for day trading and short-term strategies.

So, if you are an active trader with limited capital, CFDs are better than stocks for your goals.
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