Ways To Trade The Stock Market

People should always save a portion of their income if they can. Even for people on lower incomes, if possible, spending should be restricted to only the bare essentials to save as much as possible. If the recent recession has taught us anything it is that things can turn nasty suddenly and quickly. People without any savings will find themselves in very tough situations. They could lose their house, their cars and even their marriages without prudent financial planning. Investment is a key part of long-term financial planning.
There are many ways for someone to invest in the stock market with each carrying significantly different risk profiles. In order to determine the best way for you to invest, you need to understand the pros and cons of each method and then combine that with a careful review of your own financial situation and risk appetite.
Physical Shares
You can invest directly in physical shares through a stock broker and create a stock portfolio. There's a set of fees associated with trading physical shares, which can equal to 1 - 2% of the size of your position. You have to pay the stock broker their commission, stamp duty as a percentage of each order and capital gains tax on any profit you make. This strategy is ideal for people investing for the long-term with a buy-and-hold strategy, where they will not buy and sell shares on a daily, weekly or even monthly basis. The stamp duty and commissions could make short-term trades unfeasible. Equity investment can generate stable long-term return as the economy grows and companies pay out dividends.
CFD
Contract For Difference or CFD is a type of derivative instrument that allows people to trade their underlying assets such as stock indices or individual stocks but without the costs of stamp duty since the investor never purchased any physical stocks. The investor will still get dividends and interests credited/debited to their account just as if they actually owned/sold the stocks. Broker's commission still applies. CFD trades also come with leverage, which means any return or loss will be magnified. The leverage can vary from 10x to 100x depending on the broker. It is just like trading stocks but without the investor ever owning the stocks. This type of investment is far more risky than trading physical shares and as such can lead to greater returns and losses. Hence it is only suitable for active traders with greater risk appetites and stronger balance sheets who can afford putting certain amount of capital at risk.
SPREADBET
As the name suggests, it is a type of gambling. The trader will make pure bets on financial assets. It is similar to CFD in the sense that the trades are highly leveraged so a small amount of equity capital and produce large profits and losses and the trader never actually own any of the underlying assets. It differs from CFD in that it is exempt from capital gains tax since it is treated as a form of gambling and there's no broker's commission. This is the ideal platform for high risk takers, active traders and beginners who only want to use a small amount of capital to get a taste of trading stocks.

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