Difference Between CFD Trading Vs Options Trading
Should I need to own an asset to complete the trading process?
The simple answer is no if you intend to trade CFDs and options. These two trading forms allow traders to speculate on the price movement of an asset without physically buying or owning it.
Additionally, you will need a small capital to open a trade. Count it as a blessing if you are a new trader. And in this blog, we will be explaining the difference between CFD trading vs options trading on Deriv and the advantages.
Difference Between CFD Trading Vs Options Trading
Though these two forms of trading are pretty similar, there are some key differences also. Let’s have a look at that.
1. The Way Of Trading:
In CFD trading, traders usually open a position based on the asset’s opening and closing price. Simply follow the market direction and open trade. Depending on how much the price will rise or fall, your potential trading gain and loss will determine.
Besides, options trading allows traders to predict the future asset price and open a position according to the prediction. If you think that the price will go up, press the “call” button and if you predict that the price will go down, press the “put: button.
To help you better understand how call and put options work, have a read of our “how to trade options trading” blog.
2. Usage Of Leverage:
CFD trading has a huge edge because of the leverage game. When you use leverage, you can hold a larger position that will provide more exposure to the market.
Only your stake is at risk in an options trade. If the market acts against your forecast, your losses are limited to your invested amount.
3. Trade Duration:
In CFD trading, you don’t need to sit in front of the trading window, neither you have an extra headache putting an expiry time. This trading form has no expiry timeframe, and you can keep your position open as long as you want.
However, the only thing you need to maintain is to keep the account alive with sufficient funds.
Options trading requires a particular timeframe starting from 60 secs to more.
4. Trading Outcome:
In options trading, you can see your potential gain before opening the position. So, it will help one trader a lot before researching the market.
On the other hand, you won’t know your potential gain or loss in a CFD trade until you close it.
Why Trade CFDs On Deriv?
Deriv protects you from the negative balance while trading CFDs. That means you can’t lose more than your account balance. Your trade will automatically be closed once you reach the stop-out level. Ultimately, the negative balance protection resets your balance to zero if it goes negative.
Note that the stop out level is when your trading account lacks inadequate funds to maintain open positions. The magic is due to the drop in margin; your worst-performing open trades are immediately closed.
We all know that CFD trading carries the highest risk with high volatility. One of the significant reasons for trading this form on Deriv is that you will get the highest protection again, losing your money because the platform offers risk management such as stop loss and take profit. And using these features, you can control the high volatility trade effectively.
Why Trade Options On Deriv?
Well, options trading on Deriv allows traders to save their investment. Here, your risk is limited to your stake amount. Ultimately you won’t lose more than your stake amount.
On the other hand, you will get a more comprehensive list of trading instruments. So, you can easily diversify your portfolio. Even more, you will get multiple types of options contracts with different conditions. Now, you can choose what meets your needs.
Which One Should I choose?
Honestly, it depends on what type of trader you are. If you believe in short term trading, the best option is Options. But if you want to stay out of day trading restrictions, CFD trading is the best suit for you.
No matter which trading type you choose, you need to build strong strategies. But, if you’d like to practice risk-free, a demo account could save you that’s pre-loaded with 10,000 USD virtual money.
Conclusion
So far, we have mentioned why Deriv is the best option for traders; both CFD and Options. So, now it’s your turn to select one form with the best advantages.
