On the surface digital options trading and CFD trading may seem similar. However, once you get into the specifics, you quickly see that the two are quite different. When trying to select an alternative form of investment, it is vitally important to have all of the facts prior to making a decision.
One of the similarities between CFD trading and digital options trading is that neither requires the trader to purchase any shares. Those who trade CFD’s will have the option to buy or sell contracts based upon a price movement prediction, similar to the basic binary options trade where up or down price motion is forecast in order to earn money from the trade.
One of the main differences between the two is that when trading CFD’s, the trader is not aware of exactly how much money could be earned or lost. When trading digital options, these amounts are always made known upfront. This is significant because having this information upfront allows for more risk control and more accurate money management.
In order to trade CFD’s, traders have to pay fees and/or commissions. These costs come in when funds are borrowed for trading. In most cases, a trader can enter into a CFD trade with only a 10% commitment of their own personal funds. The remainder is being borrowed, at a cost. A loss means that the borrowed funds need to be repaid, along with finance charges.
There is no lending or borrowing when trading digital options. There are also no per-trade fees, commission, or finance charges. When a deposit is made to your broker, every single cent of those funds are available for you to use in trades. There are no hidden or additional costs associated with trading.
CFD traders do have access to stop losses. However, these instructions only enter the picture when a loss is already taking place. The purpose of a stop loss is to simply keep a financial loss from getting worse. Even so, those who choose to trade CFD’s would be wise to make use of stop losses as a means to avoid having to absorb substantial losses.
When comparing any two investment tools, it is important to consider the fact that you are not limited to only one. Many people choose to trade both CFD’s and digital options. Additionally, some apply one round of analysis for a specific asset to multiple investment arenas. There is no right or wrong, but do be sure that you know what each platform entails prior to trading.