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By: Ralph Merlin

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Saturday, 25-Jun-2011 08:51 Email | Share | | Bookmark
CFD – A Flexible Alternative to Share Trading

Share trading has been among the common means adopted by many in their pursuit of profit maximisation. While business dealings are a way in which wealth can be accumulated and maximised, share trading provides an easy way to own businesses and make money. And it is a fact well known that shares are reflections of corporate ownership, where companies distribute their ownership among shareholders. However, where share trading may not be seen as the best way to invest or trade, and where people might need a more flexible option of dealing with shares, it would be a good idea to consider CFD’s as an alternative to share trading.

CFD represents ‘Contracts for Difference’, and is growing to be a popular and more flexible option than share trading, given its credibility and reliability. CFD’s come under the classification of ‘derivatives’ – a derivative is an instrument that is ‘derived’ from primary instruments, such as shares, in this case. The rationale for share trading is simple – you would buy shares with the intention to make a profit, which could mean, you would want to sell them at a higher rate than at which you had bought, unless you had geared up for the long term by holding on to shares with the idea of owning the companies that they represent. In the case of share ownership for the purpose of share trading, the idea is to leverage the differential between the prices at which you bought the shares and the prices at which you could sell them, ensuring a profit is made in the transaction.

CFD is different from share trading, in that you do not deal with the share prices themselves, but with the difference in share prices. As the name suggests, it is the ‘contract for differences’, where the contract between the buyer and the seller of the instrument is all about the difference in prices between buying and selling of the shares. Hence, when you are dealing with the differences in prices between buying and selling of shares, and not with the shares themselves, there is no need for traders to hold the actual shares themselves. Profit or loss in CFD is determined by whether the current share prices are higher or lower than what the price was initially, within a predetermined timeframe. If you would want to get into derivatives trading, CFD would be a good way to begin your Shares Trading operation.

If you're ready to start trading CFDs now, you can open an account online in minutes. Discover all types of risk involve in Shares Trading and how to manage them. Learn all the concept of Currency trading and much more. Read my articles at Ralph Merlin Articles and my bookmarks at Ralph Merlin Bookmarks.


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