Considered Asia’s leading emerging market, Philippines has recorded staggering growth in recent times and a remarkable increase in trading activity. From stocks, bonds, currencies to indices, the spurt of growth is evident across all financial markets. With investments being made easier through the introduction of online trading; stock trading and CFD trading have witnessed substantial growth and have reached a peak in 2017. Those looking to take their first step into trading, are caught in a dilemma when it comes to choosing between the two.
So, what’s the better option and why? Let’s find out the answer to that very question by highlighting the advantages and disadvantages of trading in stocks and CFDs:
CFD TRADING OVER STOCK TRADING:
THE GOOD:
Commissions:
The brokerage commissions on CFD trading in Philippines tend to be very low, making it a popular choice amongst traders, who want to retain a good cut of their profits. While earlier, stock brokers charged higher brokerage, the increase in competition has prompted several brokers to lower it. In 2017, both online trading options gain the edge with low trading commissions.
Leverage:
If there’s one reason why you need to pick CFDs over the other, it has to be leverage. Instead of buying ten stocks for 1000 PHP, you can instead invest the same in five contracts, controlling 500 shares with the same sum. That’s leverage – and to those who use it wisely, it promises massive profits.
Diversity:
As opposed to the stock market, CFDs allow traders to choose from over 10,000 instruments to trade, from currencies to commodities to oil. Diversifying the portfolio enables traders to maintain a balance because a loss in one tends to get compensated by a profit in another.
Short trades
A stock trader can make a profit only if the price of the share goes up. However, CFD traders can make profits either way, i.e. they can go short and make money even if the price goes down, giving them greater control over their positions.
Trade duration:
Since traders might have to wait for long durations to wait for the price of the stock to rise and make a sell, the duration is quite lengthy. CFD trading, on the other hand, allows traders to profit from small fluctuations. In fact, in the Forex trading platform, scalpers open and close positions within minutes.
THE BAD:
- Trading too many instruments and making too many trades, may complicate things for a beginner in the field.
- Leverage can have an adverse outcome and amplify losses in CFD trading.
- A CFD investor in stocks has no rights as a share holder since there is no ownership of the asset involved.
- Holding positions in CFDs for extended periods invites overnight financing charges since the underlying asset is being ‘borrowed.' Buying shares directly is devoid of such charges.
- CFDs are over-the-counter, and you cannot transfer your position to a different broker or provider. You’ll have to deal with the same broker the position was opened with.
The verdict: Weighing the pros and cons of each, it’s safe to say, that neither wins nor loses in 2017. Each has its drawbacks and advantages over the other. If you want to trade shorter time frames, then CFDs are for you. However, if the leverage aspect worries you, you can still trade with zero leverage. WesternFX is the leading Forex brokers in the Philippines that offers flexible leverage. You can start with zero leverage or even go as high as 1:500. If you’re still confused, talk to the experts at WesternFX before opening an account with them.
