CFD Trading Vs Options Trading - Which Field is Better & Why?

One of the most flexible trading markets in the world today, Contracts for Difference (CFD) is a domain ready to disrupt the trading society. What makes CFD trading unique and so sought after is that firstly, you don't have to own an asset to trade it, you merely speculate on the change in its value, and secondly, you can do this for currencies, options, indices, stocks and a variety of such financial commodities! 

There are rewards in plenty, and risks plenty more, which is what makes trading any asset, be it stocks, currencies or contracts, a very risky endeavor.
 

What is CFD Trading?
 

Choose the Best Among CFD Trading vs Options Trading

 

Put simply, contracts trading are the exchange of a financial commodity between a broker and a trader did across a pre-established timeframe decided by the opening and closing time of a trade. In essence, a CFD is an agreement between the broker and the trader, one that requires no actual owning of said asset. Any profit or loss made is a result of the commodity's movement.
 

This nature of CFD, which lets you profit from simply speculating is one of its biggest advantages. Let's see an example of its beneficial nature - assume that you want to buy 20 shares of an asset valued at $10 per share, doing this on stock trading grounds would lead to you purchasing the 20 shares for $200. However, with a CFD agreement, you need only pay a percentage of the actual share value. 

So with 5% charged, you will only be paying $0.5 per share and be able to buy the 20 shares at just $10! This is one of the many benefits surrounding CFDs.
 

Why Trade CFDs?
 

Trade on Falling and Rising Markets: The biggest advantage CFD online trading in Malaysia has, is that it allows traders to profit from markets that are rising as well as the ones that are falling. This means that you are immune to erratic economic shifts that disrupt growing trends and push them downwards. So long as you analyze the markets properly, falling trades will be a friend just like the ones going up are.
Flexible Contracts: There is no trading cap you are supposed to obey. As a CFD trader, the contracts are flexible and lot sizes are provided in varying sizes. 

If you are new, you can begin with smaller lots; as you progress the size can be incremented and you can start making bigger trades.
 

Hedge Trades: Hedging can help you greatly when you place risky trades and are on the verge of losing a big chunk of your capital. Since CFD trading in Malaysia can be done both ways, you can hedge your losing trades by opening another position in the opposite direction! This guarantees that either one of the trades will win or the one that's lost will be compensated for by the other. 
 

Trade on Margin: Margin trading makes CFDs so very lucrative! To put margins simply, opening a trade contract for a particular asset will only cost you a margin of the original value said asset carries. This makes CFD trading lighter on the pocket but doesn't reduce its profitability! 
 

What is Options Trading?
 

A derivative security, options get their value from parent assets. Options trading are the buying or selling of an asset for a fixed price before a specified date and this is done through an options contract. Options are of two types, call (buy) and put (sell) options. A call option lets you buy an asset at the price agreed upon, and a put allows you to sell the same. Once either of these options has been bought, your job as an options trader is to go long or short depending on your market speculations.
 

Benefits of Options Trading:
 

Cost-effective: Options trading can be very cost effective when compared to its cousin trading fields. Buying 100 shares of a $50 stock will cost you $5000 through normal means; with an options contract, however, you can purchase two $10 call options, wherein each call represents 50 shares, and the total would only add up to $2000! 
 

Relatively Less Risky: The margin and leverage provisions make options less risky when traded properly; keep in mind that this very leverage can backfire and lead you to losses! As a hedge and on nominal margins, however, options are times less risky than shares.
 

Healthy Profit Opportunities: When the investments are lesser than the returns, it is a clear case of evident profits. Options trading markets have a stellar profit potential in the hands of the right trader.
 

So if you are trying to decide between options trading and CFD trading in Malaysia, it ultimately comes down to preference! Both markets have a good trading value with ample profits for the taking. Still confused? Talk with an expert at WesternFX and know more! We house trading veterans, battle-hardened and ready to help you out with your queries. Call us today to get in touch!

Why should one maintain a trading diary?

Taking up Forex trading in Malaysia is a business that is lucrative and full of scope for profits. However, several traders have tasted varying degrees of success over the years. To be consistently successful in the industry, traders must learn to look for signs of risks and read the patterns that lead to success or failure. 

But reading the chart pattern only reveals the trend that the market has taken in the past. To bring success to online trading, traders need to read Forex trading pattern and discern the places where one has tasted success or failure. How can this be done? By maintaining a diary or journal! 

Why should one have a trading diary?

Keeping track of every trade ever participated in is a good way of revisiting one’s past online trading activity and looking for areas of improvement. It helps traders identify and discern patterns in their trading activity and analyze the scope for improvement. 

- During a failure, a journal can help traders retrace their wrong moves and identify where they went wrong.

- During success, a journal can help Forex traders identify what is working for them and improve upon the aspect.

What are the attributes of a good trading diary?

1) The date and time when the decision to open a particular position

2) Reason that influenced the decision

3) The market entry strategy.

4) The Forex exchange rate at the time of the entry.

5) The fixed profit/loss.

6) Stop-loss limit

7) Reason for closing the order

8) The nature of outcome

9) Additional comments.

Studying the results of a diary

Evaluating one’s journal is sure to boost success as a trader. This helps a person identify where he/she would need to improve upon. Over time, this will improve one’s performance by minimizing blunders.

Showing one’s Forex diary to an expert broker can help Forex traders gain more insights into their own way of trading and dissect it to find scope for improvement. For such services, partnering with a reputed online Forex trading company in Malaysia like WesternFX can be highly useful.

What is CFD trading? How do traders engage in it?

CFD, short for “contracts for difference,” is a form of trading where the trade occurs in contracts for the delivery or maturity of an asset class. This form of trading is increasingly offered by several reputed Forex brokers in Malaysia like WesternFX, and it is a way to trade stocks, indices, and commodities.

How does it work? 

A CFD contract is an agreement between two participants - a trader and a provider of the contractual agreement. CFD is usually done on assets such as bonds, stocks, index funds, currency, oil or gold which have an opening date and a date of maturity/ delivery. The trading activity is usually on the difference between the opening and the closing price of a contract.

Certain contracts rise and fall in value during the contract period. This makes it possible to trade in live movements of the market price of the instrument. The instrument may never be owned by the trader and it will likely be settled before the delivery of the contract occurs. These contracts are much more flexible than other modes of online trading in Malaysia and come with long and short types of trading facilities depending on the trending price direction. 

Benefits offered by CFD trading:

- The investor is not required to own the financial object. He merely trades on the contract, an instrument which guarantees the delivery of the object. Hence, he can invest partially or wholly in a contract and trade on it.

- The rates of deposit begin from just five percent. This makes it easy to open large positions with minimal investments.

- Some of the contracts in CFD trading usually do not have an expiry date. They can be traded endlessly thereby making the chances of reaping profits much higher. 

- There are no taxes and brokerage fees in CFD trading, thereby making it a highly lucrative trading arena.

While there are several benefits of trading CFDs, there are equally certain aspects which can cause losses if not handled properly. When engaging in CFD trading in Malaysia, it is highly important to have a sound risk management plan so that the traders can safeguard their investments when markets turn sour. For beginners looking to take up this domain, it is important to consult with reputed brokers like WesternFX and get the fundamentals strong before get started with CFD trading.