CFD's are derivative of the securities. Such situation has developed for the reason that the dynamics of price movement of Contract for Difference on securities (shares) fully coincides with the dynamics of stock price movements, which are the underlying asset of CFD.
As for the differences, they largely based on the fact that transactions with CFD does not lead to the ultimately changing in personal right to own shares. And here it is necessary to consider a few things.
1. First of all, it gives you the opportunity to get rid of any extra costs that are inherent in trading stocks. This also includes costs such as payment for depository services, exchanges, registrar, etc. In general, in this case, you can get rid of these costs and thereby significantly reduce costs for operations.
2. Despite the fact that the price of CFD on shares is directly dependent on the price, which lies at its core, it does not always work so that it is equal to it. Sometimes the price is much better for those traders and investors who work with CFD on the Forex platform instead of doing the same at the stock market.
3. As a result of transactions with CFD on shares the trader is not burdened with all the rights, which burden the real owner of the shares on the stock market, as is the case with their physical “movement” from one hand to another.
Can one trade on a fall or rise in share prices by using contracts for difference (CFD)?
Yes, this is possible if you are looking for a reduction of share price (or its increase) or the index value. In this case, you will be able to sell a contract for difference (CFD), ie a short position for the downtrend and vice versa, respectively.
Don’t forget that all transactions that are carried out with CFDs do not generate the sale of the shares themselves. There is only an obligation on the one hand and the right to enforce this obligation in receiving /paying the difference between the sale and purchase of CFD on shares on the other hand.