Shares online trading and what you need to know about trading stock CFDs
Shares trading online is one of the most popular ways to profit from the financial markets. The concept is quite simple as well – you buy a company’s stock and when it appreciates in value, you sell in order to realize a profit. The more stock you buy and the bigger the price movement from the time you bought, the larger your profits will be.
Simple enough, but what happens when you buy a stock and its value starts dropping, or the company outright goes bankrupt? In the first case, you are losing money and must wait for a boost in price in order to sell and in the second case, you have effectively lost your investment.
Contracts for Difference (CFDs), however, are a derivative investment asset that offers a great alternative to stock trading without most of the limitations while also maintaining the same benefits.
Shares online trading with CFDs
Stock CFDs or Share CFDs mirror the value of an underlying stock and therefore buying an Amazon stock CFD, for example, will reflect the same price as the stock exchange where the company is listed.
With CFDs, however, you don’t just buy the underlying stock, you are just agreeing to pay or receive the difference in price from your broker – at the time you close the trade. If you buy a stock CFD and the price goes up and you close your position while the price is still higher than when you opened the trade, you will make a profit.
On the other hand, if you buy a stock and the price starts dropping, you will start losing money until the price starts climbing back up again. Only if you close the position while the price is still below your entry point will the loss actually be realized in your account.
Therefore, in theory, you can keep a trade running indefinitely until the price moves in your favor and only then close the position. This method, however, isn’t always recommended as it can lead to further losses.
Trading shares online with CFDs also provides traders with access to high leverage ratios which can increase their buying power. Leverage allows traders to borrow capital from their broker in order to control larger positions and increase their earnings.
Leverage also makes trading shares online more accessible by substantially reducing the amount you need to invest in order to realize a profit. Traders with access to 100:1 leverage for example, would only need to risk $1.000 in order to open positions worth $10.000.
As you can see, leverage is an incredibly useful tool for CFD stock traders but it’s also important to remember that while it increases your profit potential, it also exposes you to higher risk.
The importance of economic events and announcements
If you want to know if the price of a stock will go up and down, the easiest way that can help you predict the market’s direction is by keeping track of the upcoming economic events and news reports.
These may include news internal to the company, or the industry in general, as well as geopolitical events that may affect the region where the company is operating in.
Companies typically publish their earnings reports every quarter and if the numbers are strong, it’s a good indicator that there will be further demand for the stock in the future which usually translates to a price increase.
Earnings reports and sales numbers aren’t the only things that can affect the investors’ interest in a company, however. Central banks and their monetary policies may also impact a country’s stock exchange prices and consequently the prices of individual stocks of the companies listed on the stock exchange.
You can trade shares online with CM Trading and enjoy the best trading conditions the industry has to offer.