SHARES

Trading CFDs on shares is essentially an exposure on the performance of a financial market, which can be positive or negative. The operation is very simple: a broker issues a CFD contract and allows the trader to be able to buy it. When you buy a contract, the broker is paid a spread, which is the difference between the Purchase Price and the Sale Price. Let’s assume the purchase of an ENEL share: the share price is 5.87, but the trader pays the broker the price of 5.89, where 5.87 is the market value and 0.02 is the spread. From that moment on, the investor gains if the price rises and loses if the price falls. One question is legitimate: why trade CFDs on a stock paying it for 5.89 when you could directly buy the stock at 5.87? The answer is clear and lies in the nature of the CFD: with Contracts for Difference the user does not buy the underlying security, but only speculates on the performance of the underlying itself.

Like any investment instrument, trading in CFDs on shares also provides benefits and risks that every trader must know. Let’s analyze the main ones.

Advantages of CFD trading

• .Financial leverage: financial leverage, or leverage, is a mechanism that allows you to increase your exposure to risk while not in possession of the money. Simplifying, through leverage, a loan is requested from the broker to open a position on the market with a minimum amount. At the close of the position, depending on the size of the leverage and the price of the asset, there will be greater gains or greater losses.
• .Buying and selling: one of the advantages of trading in CFDs is the ability to open both long (buy) and short (sell) positions, assuming an uptrend for the first case and a downtrend for the second.
• .Wide investment possibilities: with CFDs it is possible to invest in a wide range of stocks and securities, on the major world financial markets.

Disadvantages of CFD trading

• .Greater risks: trading with CFDs is a very speculative investment, therefore identified as high risk. A particular economic or geopolitical event, in fact, could cause a sudden change in prices and a substantial loss for the trader, also due to the leverage effect, which multiplies the losses.
• .Broker risk: it is true that with CFDs you do not buy the share but speculate on the underlying asset, it is also true that you run the risk that the broker is unreliable, and therefore prone to failure. For this reason, you should always choose a broker that is recognized as safe and respects European rules, such as FXORO.

In addition to trading CFDs on shares, it is possible to operate, assuming the rise or fall of the price, on many other underlying and financial instruments. Here are the main ones:

• .Forex: or speculating on the prices of the currency market, opening positions to hypothesize the rise or fall of specific currency pairs, such as USD / EUR, USD / JPY, EUR / GBP, and many others.
• .Commodities: another financial market in which it is possible to trade in CFDs is that of commodities or raw materials. Among these, it is worth mentioning the most important: oil, gold, silver, copper, natural gas, and all those belonging to the agriculture category (sugar, coffee, soy, etc.).
• .Cryptocurrencies: CFD trading on cryptocurrencies is a financial tool that is increasingly appreciated by investors, thanks to the growing interest that virtual currencies generate in the eyes of traders. In this case, it is possible to trade upwards or downwards on the main crypto of the market, namely Bitcoin, Ripple, Ethereum, and many others.
• .Stock indices: CFD trading on stock indices can also be a good choice for traders. In this case, it is a matter of assuming the rise or fall of the main stock market indices, such as the FTSE MIB, the Dow Jones, or the Nikkei index.
• .ETFs: CFD trading on ETFs, on the other hand, takes Exchange Traded Funds as underlying.