CFD Stock Trading and Share CFDs Explained

Trading stocks and CFDs are simple to do with nextmarkets. When you buy stocks, you choose your market and purchase assets at the given stock price. This means that you trade shares hoping to profit from the stock increasing in value on the stock market. After all, a stock price typically rises. Conversely, if you get it wrong, it’s where retail investor accounts lose money. CFD markets list two prices: the first is the sell price (known as the bid) and the second is the buy price (known as the offer). The difference between the two prices is called the ‘spread’ and is similar to the spread bets that are common in sports betting. Your CFD price is based on the underlying instrument price.

If you think the price of your chosen CFD contracts will increase in value on the stock exchange, you select ‘Buy’ (going long on the underlying stocks).  If you believe the market of a particular stock will decrease in value, you click ‘Sell’ (going short). The core difference between CFDs and stocks, therefore, is that with CFDs you can make a CFD profit when stocks go down in value. Obviously there is the risk of losing money if you make the wrong choices on the stock exchange. If you want more detailed info on stocks, visit our “What are Stocks?” guide for beginners.

So how do CFDs work for other assets? Much like with shares, you can define the quantity of the stock CFDs you want to trade. In equity trades, 1 CFD is equivalent to 1 physical share. When it comes to FX, indices, commodities, interest rates or bonds, the value of a single CFD will vary depending on the underlying instrument. Want to learn more about FX and forex markets? Our What is Forex? guide goes into this topic so that you can see how forex CFDs work on the forex market with several dozen currency pairs as examples and learn about any exchange commission that you might have to pay.

You can view the number on which you have a trade by searching for the corresponding ‘tick value’ in an instrument’s market info sheets. CFD stock trading is done in the market’s base currency. As CFD is a leveraged product, whereby you only require a small percentage of the full trade value (the margin) to trade share CFDs, you will generally need more margin for larger value CFD trades. Visit the nextmarkets library for more information.

CFD trading is what’s known as a ‘margined product‘. This means that you enter a trade by paying out just a fraction of a contract’s total value. Bear in mind that with leveraged trading there is always the potential for your losses to be greater than your deposits as a result of your market exposure.

Simply put, this means you can invest a small amount of money in order to control a significantly larger amount, which can result in a hugely magnified return on investment. But you must always remember that any losses you incur will be equally magnified, so it is important to manage the high risk investment accordingly. Sign up for the nextmarkets demo account to practice strategies before using your own funds.

First of all, you need to have a thorough understanding of what this type of trading involves. So if you are still asking questions like “What is a CFD stock?” you need to do a lot of research before you’re ready. After all, CFDs are complex instruments. Once you have learnt all you need to know about stock CFD trading, you have to make a decision about which market you would like to trade on.

You can find some trading inspiration from the many tools and resources an account with nextmarkets provides for you. With so much choice at your fingertips, it is important to make the right decision on which trading opportunity you go with. There are some smart CFD trading strategies that really work for CFD trading, although you should remember that there is a real risk of losing money.

If you predict that a market is going to decrease in value, you can sell a market (a move known as ‘going short’) and potentially earn a profit from the falling prices. This is where the CFD trade differs from conventional share dealing, where you can only buy (a move known as ‘going long’).

For traders, this is often the buy-in in terms of CFDs, as it gives them the opportunity to make a profit even in tumultuous times. The trick is in understanding and reading the markets to know which trades to make and at what time, as these are time sensitive. Traders can get plenty of practice from their nextmarkets demo account so that they can manage the real risk of losing money.

Any market can make rapid moves in either direction at the most unexpected of moments which means that there is always the possibility of losing money rapidly. This means that there is always the risk that investor accounts lose money. It can only take a political upheaval, a major earnings announcement or a natural disaster to profoundly impact FX (s. Forex trading strategies), bonds, equities and commodities. This market volatility can present unique and exciting trading opportunities, but it can also pose substantial risks. The nextmarkets trading platform allows traders to share in the excitement of all of these movements.

And if your CFD stock trading doesn’t go your way, it can be significantly more damaging than if a conventional stock investment doesn’t pan out. Experienced traders understand the importance of comprehending risk and finding effective tools to manage it – this is an essential component of a successful trading strategy as all investor accounts lose money sooner or later. When risk management tools are used properly, potential losses are limited without restricting potential earnings. It will also help to know what is CFD.

One of the most popular ways to use CFDs among investors is as a tool to ‘insure’ against losses made in physical investment portfolios. The option to short sell CFDs to profit from falling market prices makes them a great tool to offset losses made. For example, if your retail investor accounts hold £5,000 of shares in Barclays, and you become concerned that a sell-off is becoming imminent, you can put in a measure to protect your shares by short selling £5,000 of CFDs in Barclays.

This would mean that if the share prices of Barclays were to fall by 5% in the market, the loss you would take in the value of your shares would be cancelled out by gains made from your short sell CFD trade. By doing this, you protect yourself without having to go through the inconvenience and expense of liquidating your stock holdings. nextmarkets traders have access to these types of strategies through their CFD accounts and they can be a great help in avoiding losing money rapidly. Just remember that most investor accounts lose money, so be prepared for this eventuality.

There is tremendous potential in the world of CFD trading as long as you remember that many investor accounts lose money. If you wish to start trading CFDs, you need to first open your nextmarkets account with us to access the best free CFD software. We have a simple and secure application process meaning that you can start on your retail investor accounts any time. Once your application has been processed and verified, we’ll send your account details to confirm you are free to start trading.

Once you have your login details, you will be able to access our platform and have full use of all our powerful tools and resources to start trading stock CFDs. We are committed to supporting our clients’ journey to becoming successful traders, and as such we provide an extensive collection of educational material to help train you in fulfilling your potential as an investor. So sign up and see how easy it is to trade CFDs.