Online Trading for Beginners
In the recent past, everyone saw the world of trading in stocks and shares as a no-go area for the average individual. Everyone knew about the system of trading in stocks and shares. But they saw it as a closed-off area, an exclusive club for only the chosen few.
Things Have Changed In The Internet Age
Today, everything has changed. Online trading by non-professionals is very common. The world of speculating has opened up to people who never knew they would one day be trading in the stock market.
Who Would Consider Online Trading?
Mina, my sister-in-law is an army wife who doesn’t desire a full-time job. She supports her husband in his rising career as an officer and takes care of the kids. She’s a smart woman who likes to use her brain. When she inherited a significant sum of money from a close relative, she knew what she would do with the legacy. She invested it. “I could have blown it on the holiday of a lifetime. But I felt that would have been disrespectful to my late aunt, who worked hard to build up her fortune. Instead, I put the money to work for me and it has netted me great dividends,” she says.
Pensioners Consider It Too
Fred and Claire, a couple of pensioners, are comfortable financially. But they miss the buzz of the business world after retirement. Their investments keep them connected to the world of international trade and commerce. They enjoy the fact that they’re free to travel wherever they wish. Their dividends pay for their trips abroad. Their laptops keep them connected to how their investments are doing.
Online Trading For Beginners
So you recently came into a sum of money and you don’t wish to splurge it? If you want to invest it, what’s available to you? Traditional online share trading is an evergreen financial activity. But have you heard of online trading in CFDs? This is a more recent innovation, which is gaining popularity.
Share Trading and CFD Trading
When you engage in share trading, you buy shares in various companies. You’re the owner of those shares and you will profit or lose from their rise or fall in value. But in CFD trading, you do not own the shares in which you invest. It’s a completely different financial product. CFD stands for ‘Contract for Difference’. You never own the commodity in which you’re investing. You profit or lose from its rise or fall in value from the time you take up the investment until the time you leave it. Or, said another way, from the time you enter the contract until the time you exit the contract.
Five Differences Between Share Trading and CFD Trading
- As mentioned, the CFD trader doesn’t own the commodity, only the CFD.
- In Europe and Australia, there’s no tax on dividends from CFDs.
- There’s a significant difference in costs as CFDs are a fraction of the share price, giving increased leverage in comparison with shares.
- When the market is going well, the investor can gain significant profit from CFD trading, due to increased leverage.
- On the minus side, increased leverage works against the trader when things go wrong. The trader may, in some cases, lose more money than is in the trading account.
What This Means To Investors
Cost is the major difference between the two types of trading. A CFD trader has more leverage in his trading account than a share trader, but bears greater risk. This means that a prospective trader needs to think long and hard before investing in CFDs. Proper guidance is essential. The service of a professional and experienced broker is also necessary. Brokers generally put guaranteed stops on accounts to prevent a disaster scenario. A recommended broker which springs to mind is CMC Markets, a global leader in CFD trading.
It’s necessary for beginners to take correct guidance when making a decision to engage in online trading. We must give due consideration to the risks as well as to the gains. That’s the bottom line.