CFD vs Equity Swaps Differences and Similarities

CFD, short for contract for difference, is a contract between a buyer and a seller where both parties speculate on an asset’s future price. They then reach an agreement to exchange the difference in the value of an asset after a contracted time period. If their prediction of the asset’s price is correct, they end up in profit. However, if the buyer predicted that an asset’s price would go up yet it didn’t, the buyer would end up in loss.

What does it mean for traders?

CFD traders don’t actually own the underlying asset; but instead, they’re only betting on the value of an asset. On a positive note, the leverage factor in CFD trading enables you to get greater market exposure with limited funds. Here at CAPEX, you can trade CFDs on over 5000 securities and assets, that too, with high leverage and low trading costs.

Pros of CFD trading

Plentiful trading options as CFDs can be traded on numerous instruments, including stocks, indices, commodities, forex, and even cryptocurrencies.

• You don’t need to own an underlying asset in order to profit from it.
• Trading with leverage allows you to gain greater market exposure with fewer funds.
• If traded with the right strategies and right broker, CFDs can prove to be extremely profitable.

Cons of CFD trading

• CFDs are complex instruments with high risk.
• When trading with CFDs, you don’t own the underlying asset.

Here at CAPEX, we allow traders to trade CFDs on forex, indices, commodities, ETFs, shares, bonds, blends, and cryptocurrencies. You can invest in several markets with the help of numerous learning tools designed to help you trade profitably. If you’re unsure as to whether CFDs are the right instrument for you, you can try out our free CFD demo trading account to get a better insight into CFDs and to trade them profitably.

An equity swap refers to a financial derivative contract between two parties, where both parties agree to exchange a set of future cash flows on a given future date. The cash flows in equity swaps are referred to as ‘legs’ of the swap, where one leg is linked to the performance of equity or stocks, whereas the other is linked to a fixed income cash flow.

What does it mean for traders?

Equity swaps are known for being an effective way for both parties to diversify their income for a given time period while keeping ownership of their assets. In simpler words, equity swaps are a great way to gain market exposure without actually gaining ownership of stocks or equities.

At CAPEX, we’re dedicated to offering our users the best possible trading experience through a top-notch trading platform and numerous tradable assets. Though we do not offer equity swaps, you can trade over 5000 instruments through CFDs on our smooth and user-friendly trading platforms.

Pros of equity swaps

• Equity swaps let you avoid transaction costs & provide tax benefits
• Equity swaps allow you to hedge against negative returns or loss
• Traders can access more securities rather easily through equity swaps as there are fewer restrictions

Cons of equity swaps

• They’re highly risky instruments as they’re traded in OTC markets
• You can’t get open-ended exposure to equity due to a predetermined termination date.
• They’re complicated instruments.

Trading with CAPEX.com

The great thing about CFD trading online is that you can do it anywhere there is a secure internet connection. Inevitably, this means that mobile trading has proven particularly popular as traders can conveniently open and close positions from their mobile or tablet as and when it suits them.

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Both CFDs and Equities are financial derivatives & don’t require that you own the underlying asset in order to profit from them. However, both instruments have their differences as well, out of which a few are:

• Primarily, CFDs offer much more trading opportunities as you can trade CFDs on stocks, indices, ETFs, forex, commodities, blends, bonds, and cryptocurrencies. Whereas when it comes to equity swaps, you’re limited to equity or equity indices only.
• While CFDs can be renewed with the agreement of both parties, that’s not the case with equity swaps. Equity swaps expire at an agreed date and can’t be extended or renewed, which limits their potential outcome.
• If you trade CFDs with shares involved, there’s a fair chance that you can obtain dividends. Unfortunately, you can’t get dividends with equity swaps.

If you’re interested in trading CFDs with the best CFD broker out there, hop on to our website and sign up for free today.

When it comes to CFD vs equity swaps, CFDs might be the better choice as you can trade CFDs in dozens of markets, which is a great way to diversify your investments. Though CFDs are quite risky instruments, they can be traded securely if you follow a few basic tips and tricks.

Carry out proper research

Those who jump into trades without knowing the factors that affect a market’s direction along with other relevant details tend to end up losing their money. It’s essential that you’re aware of the market that you’re investing in. Knowing your market well allows you to determine market directions better, and in return, make profitable trades. We also recommend that you invest in markets you’re familiar with to increase your chances of gaining profits.

Practice on a demo account

Practicing on a demo account is beneficial because it not only allows you to understand where you stand in terms of trading knowledge, but it also gives you an idea of the risks involved with trading any certain instrument while giving you the opportunity to practice before investing actual capital. Here at CAPEX, you can sign up for our free demo account feature and take advantage of our learning tools to get a hold of CFD trading before you invest in it.

Apply trading strategies

Having a few strategies up your sleeve can do wonders when it comes to trading CFDs, so it’s essential that you learn and practice expert strategies before beginning your investment journey. At CAPEX, we allow traders to follow experts on our trading platform so they can learn while making profitable trades. Although, another great way to learn and practice strategies is to read about them online and apply them to our demo account features. You can practice your strategies to see which one works best for you and finally apply them in real life when you feel ready to do so.

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