Should you invest in stocks or trade CFDs?
approach, as profits and losses remain magnified proportional to deployed leverage. While it requires significantly less capital to generate an identical profit or loss in a CFD portfolio compared to an investment portfolio, traders must operate from well-capitalized accounts to achieve a sustainable risk-reward ratio.
While leveraged CFD accounts are the best combination for skilled traders, it does require knowledge on how to use them effectively and efficiently. Below is an example of CFD leverage vs. the same position in an investment account, buying 1,000 stocks in fictional company ABC at $40.00 per share. The investor has an unleveraged trading account, while the CFD trader uses leverage of 1:20 from an international broker. Many brokers offer 1:500, which is for Forex trading, while liquid equities get 1:20, which results in a margin requirement of 5%. Active traders may negotiate a more beneficial environment.
New traders should never take a position greater than 1% to 2% of their portfolio size, irrelevant if they invest or trade. There is no ownership of the underlying asset with CFD trading.
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