5 questions on stock CFDs

We took note of the most common questions we hear about stock CFDs, and present here a list of detailed answers to help you feel comfortable and confident about your trades.

1. What is a CFD?

A Contract for Difference (CFD) is an agreement between a trader and a broker, where the trader speculates on the price movement of a stock without owning the underlying asset. If the trader expects the stock to rise, they take a "buy" position, and if they anticipate a decline, they take a "sell" position. However, the key point is that the trader never actually buys or sells the stock itself, just the right to potentially profit or lose based on its price movements.

2. Why trade CFDs rather than just buying stocks?

CFD trading offers the advantage of leverage, allowing traders to control larger positions without committing the full value upfront. Instead, they pay a smaller margin deposit. While leverage can amplify potential profits, it also increases the risk of greater losses. This feature distinguishes CFDs from standard stock purchases, where full payment for the asset is required. Stock CFDs allow larger positions with less capital, enable potential profit from both rising and falling markets through long or short positions, offer lower upfront costs and access to a variety of global markets.

3. How does leverage work in stock CFDs?

When beginning leveraged trading, it’s wise to start with a lower leverage than the maximum allowed. This helps traders maintain their positions even during losses. Leveraged trading is generally suited for short-term strategies, as it allows for quick reactions to price movements. For long-term investments, however, a "buy and hold" strategy is not appropriate, as leveraging over long periods increases the risk.

Example:
With 10x Leverage: You invest $1,000 with 10x leverage, controlling $10,000 worth of stock. If the stock price rises from $100 to $110, your 100 shares are now worth $11,000. Your profit is $1,000 ($11,000 - $10,000), minus your initial $1,000 investment, netting a $900 profit.

4. Which stocks can I trade?

When trading stock CFDs on markets.com, you can access stocks from major global markets, including major blue-chip companies like Apple, Microsoft, and Amazon, as well as tech giants such as Nvidia and Tesla. Financial stocks from firms like JPMorgan Chase and Goldman Sachs, consumer goods companies like Procter & Gamble and Coca-Cola, and healthcare stocks such as Johnson & Johnson and Pfizer are also available.

The exact selection depends on your broker, so check their platform to see which stocks are offered for CFD trading. CFDs allow you to speculate on price movements without owning the underlying assets. The wide selection lets you build a personalized portfolio. However, it's essential to monitor your positions closely and stay mindful of varying trading hours across different markets.

5. What are the steps of trading share CFDs?

1) Click here to open a live trading account
2) Log in on markets.com
3) Fund your account
4) Find your first trade

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.