As we previously explored the differences between trading stocks and forex, let’s now look into the difference between Stocks and Stock CFDs. Many MT4 forex brokers offer trading in stocks. In some cases, these are also marketed as stock trading. However, on closer observation, the stocks that you see on your trading platform are actually quite different from the stocks that you would trade at an exchange.

Contracts for difference or CFD for short is a derivative product. The contract for difference allows traders and speculators to make use of the instrument in order to speculate on the price movement of the underlying instrument or security.

There are many different CFDs, ranging from stocks to stock indexes, bonds and many precious metals and commodities. The pricing of these CFDs are derived from the underlying cash market instruments.

For example, if you were to trade the stock CFD for Apple, you are trading the derivative instrument of the stock (Apple) whose price is derived from the actual price of Apple stocks traded at an exchange.

Main differences between stock CFD’s and stocks

Trading stock CFDs offers quite a few benefits, especially for those who do not have access to trading the stick directly or have limited capital. Stock CFDs or CFDs, in general, are leverage products. This is one of the main reasons why traders often prefer to trade stock CFDs for lack of other alternatives.

For example, if the share price for a stock is trading at $100, and you buy 10 shares, you would need to put up $10,000 in capital to purchase the stock. Whereas, if you were to buy the same stock as a contract for difference you would have to put up just $200 at 1:50 leverage.