Stock trading sites with leverage
Stocks in 6 countries available.
Minimum deposit: 1€
Regulation:Many regulation and registratations
Stocks in 21 countries available.
Minimum deposit: 100€
Stocks in 7 countries available.
Minimum deposit: 200€
Stocks in 12 countries available.
Minimum deposit: 100€
Stocks in 8 countries available.
Minimum deposit: 250€
Regulation:MiFID, CBI, ASIC, FSC, BVIFSC
Stocks in 23 countries available.
Minimum deposit: 100€
Remember that forex trading on CFDs are a leveraged product and can result in the loss of your entire capital. Trading CFDs may not be suitable for you. Please ensure you fully understand the risks involved.
Stock Trading vs CFD Trading
There are fundamental differences between trading in CFDs (contracts for difference) and stock share trading, and it’s wise to know them well before investing. With stock shares, you physically buy into a commodity so that you own shares. Conversely, when you invest in a CFD, you never actually own an asset or any share in it.
The product you are buying with a CFD is known as a “financial derivative” or a “derivative instrument”. The derivative might be based on the value of underlying stock, indices, treasury, currency, or commodities.
When you invest in a CFD, you are speculating on the fate of the underlying asset and whether it will rise or fall in value. In general, investors use what’s known as “leveraging” when trading CFDs, and, to a lesser extent, when buying stock shares. If you think of leveraging as a way of magnifying the profit or loss in investment, you’ll be on the right track.
Margin vs Leverage
Whether you’re investing in stock shares or CFDs, the money you use to invest is known as the “margin”. In the case of CFDs, and in the case of Forex trading, the size of the margin might only represent a small fraction of the amount you’re investing on (e.g. 5% or 10%).
A margin is like a deposit, with the remainder of the investment extended to the investor by the broker as a loan. Interest is subsequently paid on that loan by the investor.
When investing in stock shares, margin loans are typically set at a maximum 2:1, or 50%, rather than the 20:1 loan that is possible in CFD trading. Some stock share investments are made at 1:1 without leverage.
The margin, then, is the means with which leverage is applied. You might think of it as a pivot. In CFD trading, the magnifying effect of leveraging and the relatively high leverage rates applied mean that traders can quickly gain or lose a large percentage of their investment.
Let’s look at some simple examples of how these figures work:
A CFD trader invests in a derivative with $500 value using a $50 margin. If the underlying stock or commodity rises by 10% in value to $550, the investor will make a 100% profit.
Note that CFD traders can “go long” or “go short” with their predictions, thus speculating on a rise or fall in stock value. When the investor goes long, he or she is basically banking on the same outcome as an owner of stock shares. Obviously, a share owner never hopes for a fall in share value.
An investor who buys $500 of shares using a $250 margin with 2:1 leverage will make a smaller 20% profit if the shares rise in value to $550.
Stock share trading is subject to stamp duty whereas CFD trading is not. That will eat into profit, as will margin interest charges in both types of investment. Although interest is always charged on margin accounts, the interest rate is typically more competitive than that of a personal loan.
Investing Without Leverage
In general, most brokers will not allow CFD trading without leverage because this would reduce their capacity to make money. There are some exceptions.
Bear in mind that, if you’re investing 100% of your own money, there are some inherent benefits in buying stock shares instead. You’ll eliminate margin interest, may receive dividends on shares, and you might find the investment more transparent.
If you buy shares without a margin, and by association without leverage, you risk less. Leverage is something to be used wisely and cautiously, like a credit card with a high spending limit. When it goes wrong, investing beyond your means can cause bankruptcy.
A solid investment using a cash account rather than a margin account is a way to go if you don’t like or want risk. There is no opportunity to lose more money than you invest. Of course, there is less upside potential, too.