So, you have some money to invest and some time to spend on learning. As a life coach I always tell my clients to look for ways to invest.
And investment is getting quite the hype these days. You have learned that everyone around you is an investor now and you feel like entering the stock exchange too.
You might have also heard that CFD trading is the closest thing to what you have heard about exchanges, and money is made there.
But is it the right tool to invest in stocks? Let’s see.
If you wonder what a Life Coaching website has to say about investment you are right, we are not experts. That’s why we will explain to you the basics, so if you want to start you have the basic knowledge to dig deeper.
Our mission is to help people increase the quality of their life. And many people miss on so much by not investing. Money equals freedom and making more of it all while being on your purpose is not a bad thing.
That’s the good thing about investing. It doesn’t cost you any extra energy and time. You are making money work for you, and if you do it right, you can make some serious profits on the side.
Ok, let’s start with the basics.
What’s a Derivative?
So, what’s the main difference between a stock exchange and, say, a fish market?
At a fish market, you buy or sell real fish.
The price may depend on the species, the season, the weather, the overall economic situation, but the core remains.
You pay money, you get fish. If some species become extinct and more expensive, you pay more money for this fish, and receive more if you resell it to the restaurant.
If a fish gains another pound or two while waiting in your pool, its price grows too. That’s approximately how stocks behave.
But the stock market has a lot of tools that don’t involve fish directly. Essentially these are obligations to sell or buy, and then rebuy or resell, some fish for some fixed price at some fixed or indefinite moment in the future.
If the price falls by the due moment, you benefit from the sell rebuy scheme. If it rises, you benefit from buy resell. The main trick is that these obligations also can be transferred: that is, sold, bought, and traded in any possible way.
The actual fish is not involved in such deals. You don’t have to own it to make these buy resell or sell rebuy agreements. They only depend on actual price changes.
These contracts are called derivatives, and the big wild world of derivatives includes contracts for difference.
What’s the Difference?
Contracts for difference exploit these buy, resell or sell, rebuy schemes, where one side obliges to sell or buy a certain asset for a certain price, and the other side may request it at any given time.
These contracts for difference can be bought and sold without owning actual shares.
In addition, CFD traders can use leverages provided by brokers.
This means they can operate much larger sums than they deposit, given the leverage advantage.
On the other hand, it can amplify the loss, so it takes double care to avoid it.
Can It All Be So Simple?
Well, CFD trading is way easier to enter.
It does not take a license or years of education, though you do need to self educate before and after you start.
You don’t have to be physically present at the exchange: it all happens online.
You can have all the tools right on your smartphone.
On the other hand, the art of trading does not have a simple basis.
When you own actual stocks, it’s simple: you get richer when they go up, you get poorer when they go down.
With CFD, you can actually sail against the wind and benefit when the share price falls. Yet, like any sort of navigation, it’s an art.
Did this basic explanation make sense for you?
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