A topic that is only tangential to Forex, the question of whether to trade stock CFDs bothers many FX traders because most retail brokers (outside of the USA of course) offer such trading instruments.
On the one hand, the availability of such CFDs (with stocks of major global corporations) in the standard offering of your Forex broker makes it extremely easy to analyze, trade, and manage stocks — all from the comfort of your favorite trading platform.
On the other hand, trading stocks via CFDs as opposed to buying them on an exchange via a stock broker bears some important disadvantages:
- The biggest issue most traditional stock investors point out is the lack of dividends. However, this becomes a problem only if two conditions are met: you buy a stock to hold it long-term (usually, dividends are quarterly), and the stock in question is dividend-yielding (not all of them are).
- Leveraged trading is considered a great boon in FX trading due to low daily percentage changes in currency rates. In stock CFDs, the same leverage might be a serious concern, especially if you are applying a buy-and-hold approach to your positions.
One could also mention high commission and overnight swap payments as a disadvantage of stock CFDs, but the thing is that you can find a broker with very low commissions and zero swaps for CFDs; meanwhile, one could also choose a wrong stock broker with high fees and poor order routing.
Overall, trading stock CFDs isn't something to avoid in all cases. Stock CFDs have some clearly defined disadvantages and those disadvantages matter only under certain conditions. So, to conclude, there is no reason to shun trading stocks via CFDs if you are inclined to it, but you have to pay extra attention to how your goals align with your broker's trading conditions
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