How to trade CFDs on US Stocks?
Contracts for difference, or CFDs, are leveraged products that allow investors to speculate on the price movements of underlying assets. While trading CFDs in the US is not permitted, it is a legal form of trading in places like Europe or Australia. US stocks are definitely the hot cake on the CFD trading market, considering that, in 2021, the United States accounts for more than half of the global stock market.
Contracts for Difference Explained
CFDs are a derivative product, meaning you don’t own the underlying asset when trading. Instead, you are trying to profit from the asset’s price movements. As the name suggests, you are entering into a contract with a CFD provider based on the difference between the opening and closing position of the trade. Whether you profit from going long or short will depend on the final price when the position is closed. This makes trading CFDs a popular choice, in addition to the numerous financial instruments that they offer.
Trading US Shares as CFDs
Trading traditional US shares from outside the US can be relatively cumbersome. It often requires creating and maintaining a separate account with a US broker. It’s a simple task for US citizens. But for those who reside outside the US with no bank account in the country, it can be rather troublesome. Furthermore, national financial regulations also play a role in determining various factors in trading as a foreigner.
CFD Trading in the US
As previously mentioned, US citizens are unable to trade in CFDs because it is against US securities law. The Commodity Futures Trading Commission (CFTC) and its overseeing institution, the Securities and Exchange Commission (SEC) both prohibit the opening of CFD accounts through domestic or foreign brokerages. CFDs are illegal for the simple reason that they are unregulated. In contrast the underlying assets they represent are under regulation, be they stocks, currency pairs, commodities, or bonds.
As an over-the-counter (OTC) financial instrument, CFDs are heavily regulated under the Dodd-Frank Act. It is primarily targeted at US financial institutions and US markets but it has an indirect impact on financial institutions outside the US.
How to Start Trading CFDs
With a trusted and world-renowned brokerage like Eightcap, you can open up an account in minutes and trade on various financial instruments starting from 0.0 pips. You can also sign up for a free demo account. Try out the award-winning MetaTrader 4 trading platform or its successor, the MetaTrader 5, which gives you the opportunity to trade from any web browser. The library of educational material can help you get familiarized with some of the US stocks and indices that you can trade on five days a week.
Trading on margin is high risk.