CFD vs Options Differences and Similarities

Contract for difference is a popular form of financial derivatives in which traders buy and sell contracts rather than physical assets. The buyer and seller speculate on an asset’s price and make a bet on its movement – whoever’s speculation is correct ends up in profit.

In simpler terms, if a CFD trader senses that an asset’s market value is about to rise, they will invest based on that speculation by going long/ buying a contract. However, if the trader speculates that the asset price will fall in the near future, they will go short/ open a position in the market.

Pros of trading CFDs

• CFDs are traded on margin, allowing traders to invest limited capital in return for greater market exposure.
• CFD traders can benefit from falling and rising markets by either going long or going short.
• CFDs can be traded on numerous financial instruments, so they make it easy to diversify your trades and open doors to endless trading opportunities.
•  If you trade CFD on stocks, you might get access to dividends.

Cons of trading CFDs

• Trading with leverage makes CFDs risky instruments as you can lose more than you’ve invested.

Here at CAPEX, we offer CFD traders over 2100 tradable instruments along with several tools and features to reduce the riskiness of CFDs. For instance, you can learn trading through our excellent learning tools and features, follow our expert trading blogs to keep up with ongoing market trends, and even follow expert traders through a feature available on our MT5 trading platform.

Options are another famous type of financial derivative in which a trader gets the right to buy or sell an asset or security on a fixed date at a specific price. However, this right comes with a cost, which is known as ‘premium trading cost’. If an option buyer pays a premium, but the market prices don’t go as he presumed, they can let the option expire to ensure the loss doesn’t exceed the cost paid as a premium.

There are two selections in options trading, ‘call’ and ‘put’. If the buyer chooses the call option, he or she gains the right to purchase a given asset at a predetermined date in the future. If the buyer opts for the put option, the buyer will obtain the right to purchase an asset at a predetermined price in the future.

Pros of trading options

• Options are considered cost-efficient as they can be traded with high leverage.
• Options have a high potential return.
• The risk factor in options trading is less.

Cons of trading options

• Options have less liquidity.
• The commission rates are usually high for options trading.
• Limited trading options as you can’t trade options on all stocks.

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First, let’s go over CFD vs options similarities. The primary similarity between CFDs and options is that both are derivatives. Another similarity worth noting is that both instruments are traded with leverage. However, there are several differences to be considered between the two instruments as well. For instance:

• While CFDs don’t involve the buying and selling of an underlying asset, instead, it involves an agreement between two parties to exchange the variation in the value of an underlying asset after a certain period of time. Options involve buying the right to purchase a given asset or security without any obligations.
• CFDs are more cost-effective to trade compared to options, especially if you’re trading with a CFD broker with low commissions.
• CFDs are far less complicated, whereas options can be complex instruments.

Here are a few benefits CAPEX offers its traders:

• At CAPEX, you can choose between two excellent trading platforms – CAPEX WebTrader & the MT5 Trader. Both platforms are easy to use and offer quick access to trades. Our trading application is available on iOS and Android.
• We offer our traders excellent customer support seven days a week. Our customer support services can be availed through email, phone, and live chat. Plus, we have an elaborative FAQs page where you’ll find the answers to most of your questions.
• We believe learning is the key to becoming a successful trader, which is why we offer our traders several learning tools, including an online trading school – CAPEX Academy. You can also learn trading terminologies through our trading dictionary and follow market trends through our expert trading blog.

Our users are our number one priority, and we’re dedicated to providing traders with the best CFD trading experience from every aspect.

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