What are Stock CFDs | Explanation & Tutorial

Explanation and definition:

With a stock CFD you can bet on rising and falling prices of a stock. It is a contract for difference, which is sold by the broker to the trader. With this contract you do not own the underlying asset, but only a “claim” or the contract with the broker. Stock CFDs are particularly interesting because leverage can be applied and trades can be made on falling prices.

You want to invest with leverage on rising or even falling shares? – Then share CFDs are the perfect financial product for you. On this page I explain step by step how to trade shares in connection with contracts for difference. Thanks to more than 7 years of experience in online trading, I will provide you with valuable information and tips for trading in the following texts.

Advantages and disadvantages of shares CFDs

AdvantagesDisadvantages
Fast and easy market accessOvernight holding charges, since leveraged trading
Trading on falling prices (short selling)
High liquidity
Trading with leverage up to 1:5 (depending on broker)
Direct market access: orders appear in the order book

Trading example for a stock CFD calculation:

Stock CFDs are usually traded with leverage. This has the advantage that you need less equity (margin) to trade higher amounts in the market. The broker provides you with leverage and, so to speak, lends you capital for the transaction. The margin is the security deposit that must be deposited with the broker.

In the following example I would like to show you how to calculate a stock CFD:

  • For example, you buy BMW shares 10 times at a price of 100€
  • The leverage of the stock CFDs is 1:10
  • A total of 10 shares x 100€ = 1,000€ is traded
  • Thanks to the leverage of 1:10 you only need 100€ capital to trade the sum of 1.000€.
  • 100€ margin x 10er lever = 1.000€

The picture below illustrates the purchase of 100 Adidas shares in the order mask. You can see the contract size and the margin. In addition, you are shown transparently various fees that can arise during trading.

Leveraged positions allow you to make a greater profit and loss. Instead of a normal stock transaction you trade a 10 times bigger position through the leverage (of course you don’t have to take the full risk). Many traders also use stock CFDs to hedge their real stock portfolio against short-term fluctuations. The strategies remain open to you. The stock CFD is a universal financial product.

Example for the profit case:

  • The share rises from 100€ to 110€
  • This is a profit of 10€ per share
  • In total a profit of 10 x 10 = 100€
  • As a result, you have received a return of 100€/100% on your 100€ margin (collateral) instead of just 10% profit without leverage

Fees and commissions when trading shares CFD

Trading in stock CFDs is not free of charge. The broker offers you the necessary infrastructure to trade and charges fees. When trading with contracts for difference on securities, different fees apply. These I would like to explain to you in the following points:

The fees depend on the broker:

  • Commission. There is a commission per equity order. It does not matter how many shares you trade per order. The commission per order always remains the same! Several orders cost more commissions. With XTB the commission is from 0.08% (minimum 8€).
  • spread: This is the difference between the buy and sell price on the stock exchange. This is usually 1-2 pips. The direct market prices are offered.
  • Daily Swaps: Since trading a stock CFD is leveraged, there is a daily fee if you hold the position overnight. The broker will lend you capital for the trade and therefore charge this fee. The swaps for long or short positions can be different.

Review of the portfolio

In the trading platform you can directly view the open trading positions. You will be shown the margin used and how much “free margin” is still available in your account. You will also see the current profit/loss transparently.

The gross profit means the actual profit and loss and the net profit shows the estimated profit when closing the position. There is another spread when closing the position. Also use a Stop Loss and Take Profit to hedge the positions. These are automatic limits that close the position in case of profit or loss.

Portfolio management with stock CFDs:

  • Transparent overview of all positions
  • Use a stop loss
  • Use a Take Profit

Switch between CFDs and real shares

Not every broker offers real shares and at the same time share CFDs on his trading platform. In the picture below you see the order mask of Etoro. A recommended broker, which offers CFDs for shares and real stock trading without commissions.

By clicking on “Leverage” you can choose the leverage yourself. At X1 you trade the real stock and not a CFD contract. Use the lever to trade the CFD contract. Also in this order mask you can see the fees transparently. Leverage is especially interesting for short-term traders.

RECOMMENDED BROKERS FOR SHARE CFD TRADING:
From my experience Etoro and XTB are the best CFD and stock brokers for the private trader. In the following sections I will give you a more detailed overview. The companies are internationally regulated by several licenses and offer trading with real assets and CFDs to German clients. You can benefit from professional trading platforms (picture below).

Etoro: Shares without commissions and stock CFDs

Real shares can be traded on Etoro without commissions and fees. Stock CFDs may be subject to the fees listed above. In addition to shares, you can also invest in other assets such as crypto currencies, Forex (currencies) and commodities. Over 1,000 different markets are offered.

In addition to manual trading, it is also possible to follow other already successful traders automatically. In the trading platform you can copy portfolios of other participants. In addition, there are various funds set up according to specific market criteria. Etoro is for me the optimal provider for any investment.

Advantages of Etoro:

  • Multiple regulated broker
  • German Service
  • Over 1,000 different markets
  • Free share demo account
  • Social and Copy Trading
  • Real stock trading without CFDs
  • Shares without commissions
  • Transparent fees

XTB: A professional stock broker

XTB is the trading platform, which is also shown in the video above. It is a European broker that offers more than 3,000 different assets for trading. You can trade real stocks and stock CFDs with the xStation 5 trading platform. A leverage of 5 is offered here.

The offer covers German, European and international shares. In addition, XTB has a branch office in Frankfurt from where you get a good and personal service. Trade shares, crypto currencies, forex, commodities and more at low fees. You can open a free demo account or start with a minimum deposit of 0€.

Advantages of XTB:

  • Broker regulated in Germany
  • No minimum deposit
  • Free demo account
  • Over 3,000 different markets
  • German support from Frankfurt
  • Very good and user-friendly trading platform

Conclusion on trading with shares CFDs (contracts for difference)

Stock CFDs offer an investor the opportunity to make short sales on securities in a simple and straightforward manner. Short sales of normal shares, for example, are quite expensive for private investors, as there can be high fees and risks.

The leverage of stock CFDs also offers short-term speculators an enormous advantage. Increase your maximum return on your invested capital. With the right investment strategy, you can quickly make high profits or hedge your portfolio.

Contracts for Difference are regulated by the European and German Financial Supervisory Authority. It is therefore essential that you choose a regulated broker for greater security.

Good luck with your trading!


Read my other articles about CFD Trading:

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