CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.09% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

74% of retail investor accounts lose money when trading CFDs with this provider.
76.09% of retail investor accounts lose money when trading CFDs with this provider.

What are Stock CFDs?

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Author: Leon Marshall

A stock CFD (Contract for Difference) is a unique derivative that allows you to speculate on the price of stocks with Eightcap. Here is everything you need to know before you start trading with stock CFDs. 

What are CFDs?

CFDs are financial derivatives that allow traders to speculate on price movements. Unlike traditional share dealing, stock CFD trading doesn’t involve actual ownership of any underlying shares, offering flexibility and several strategic advantages. 

Important: Eightcap offers CFDs on over 800 markets!

See our full range of stock CFDs >

Advantages of Stock CFD Trading over Traditional Share Dealing

Leverage: Experienced traders can use leverage with CFDs to open larger positions than their initial investment.

Hedging: Useful during earnings seasons and economic events to mitigate risk; traders can cover their initial position, before closing it as the trend develops in an effort to to take profit in the direction of the prevailing trend.

Cost-Effective: Eightcap offers low spreads on stock CFDs, meaning this could be one of the most economic ways to seek exposure to stock market volatility. 

Short Selling: Traders can potentially profit from falling prices by ‘selling’ stocks they don’t own using CFDs.

Trading vs Investing: the Value of CFDs

It’s important to understand the difference between trading and investing to appreciate the value of CFD trading:

Trading stock CFDs is all about aiming for short-term profit generation by capitalising on market fluctuations. Traders rely heavily on technical analysis and market trends, often making decisions in periods as brief as a day or even minutes.

In contrast, stock investing is a long-term endeavour aimed at wealth accumulation over years or decades. Investors commit to stocks based on a company’s fundamental strengths, such as financial health and growth potential, adopting a more patient and less active management style.

CFDs are ideal for trading because they are much more flexible than traditional share dealing, and they also don’t have the lofty commissions that are typically associated with the latter. Constrastingly, share dealing with true ownership is more popular for investors, because they avoid incurring any overnight fees

Types of Stock CFD Traders: 

  1. Day Trader: Trades CFDs within the same day, minimizing overnight market risks.
  2. Swing Trader: Holds trades for days or weeks to capture market trends, using technical and fundamental analysis. With CFDs, these traders will have to pay a swap rate.
  3. Position Trader: Focuses on longer-term trends, holding positions for months. Again, this will incur a rollover rate.
  4. Scalper: Makes rapid, frequent trades aiming to profit from small market movements.
  5. Algorithmic Trader: Uses computer algorithms for trading, based on quantitative models.
  6. High-Frequency Trader (HFT): Engages in extremely short-term trades, often seconds, using complex algorithms.
  7. Momentum Trader: Trades stocks moving significantly in one direction on high volume.
  8. Value Trader: Looks for undervalued stocks based on fundamental analysis.
  9. Growth Trader: Focuses on companies with above-average growth, regardless of share price.

Final Thoughts

Stock CFD trading is a dynamic and potentially rewarding activity that requires an understanding of market trends and strategic execution. Eightcap provides the tools and resources you need to effectively take on the stock market using CFDs.