Which Instrument is Suitable for Young Traders
The influx of smart gadgets enabled youngsters to explore for productive means to spend their free time. In several cases, these so-called “millenials” use the internet to turn their hobbies into income generating endeavors. Some samples of these include business, vlogging and even trading. That’s right, did you know that even teen-agers have already found their fascination in the finance world? Philp Blom for instance holds the world record for being the youngest profitable forex trader in the world. So if you are a millenial and you wish to experience the thrill of dealing in the market, it pays to know the Basic Trading Concepts. For your first lesson with us, we will briefly explain Stocks and CFD Trading because these two instruments are believed to be one of the most common instruments for young traders.
All About CFDs and Stocks
Differences between CFDs and Stocks are pretty obvious. Contract For Differences or CFDs are agreements between the client and the broker to deal with the difference in the value of a particular contract. These contracts emanate from the shares, commodity, currency and index rates in the market. The most significant feature of this instrument is the huge probability of a trader to be involved in global trading even without owning stocks. Stocks deals on the other hand may provide impressive profits when assets are sold at the right timing. To make sure that your transactions are fairly done, a trader should see to it that the asset is either bought or sold at publicly-listed companies with rates being defined by the trading provider.
3 Main Areas of Differentiation for CFDs and Stocks
1.Leverage
CFD trading is well known in terms of leverages as it could make your profit grow up to 200%. This is made possible because CFD brokers allow a trader to put up at least 5% of the commodity rate and this serves as your margin. The rest of the percentage for the payment of the commodity is shouldered by the broker. Won’t the broker be at a losing end if he shoulders the bigger portion of the deal? The answer is no because several if not all brokers may get their profit from spreads, commissions and other fees. Plus, if you lose your position you also lose the same percentage of your leverage. Stocks trading on the other hand works in a much simpler procedure because you would get the exact share value of your cash provided you do not have any margin loan.
- Risks
Apparently, CFDs have a higher form of risk compared to Stocks trading. When you deal with CFDs you are prone to face the challenges of counterparty, execution, gapping and even margin call even when you invested a small amount in the trade.
- Time Frame for Profits
People who are willing to wait for their profit to grow would most likely deal with Stocks Trade. Meanwhile, if you are into fast paced profit, then CFDs are for you.
Conclusion:
The youths are known for their enthusiasm and daring nature. If we are to match these two main qualities, CFDs would be a great choice for them because it gives them the avenue to easily get more profit than Stocks. Stocks however could be a good option for young traders with zero knowledge since it has less risk compared to CFDs.
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