A large number of Czech traders face a dilemma with regard to participation in the stock markets. They are not only considering what stocks they should buy but how they would like to gain access to the market. The choice between conventional stock trading and contracts for difference is becoming a frequent crossroads. Both styles are valid, however the experience and results may differ greatly based on the strategy, risk tolerance and objectives of the particular trader.
Most people are familiar with traditional stock trading. It consists of purchasing and ownership of real shares of a business, usually with a long-term perspective. Investors can receive dividends, attend the shareholders meetings and enjoy the capital appreciation in the long run. It is a more measured rhythm, better suited to the needs of those who wish to become wealthy over time and do not worry too much about day-to-day price fluctuations. This approach continues to attract a number of Czech investors particularly where stability and ownership are important.
In comparison, the share CFDs are better suited to the needs of individuals who prefer to have flexibility and the opportunity to take actions promptly. These products enable traders to speculate on price movements without having to be in ownership of the asset. This introduces the possibility of shortening timeframes, using leveraged positions and trading in both rising and falling markets. CFDs tend to be favoured by Czech traders who like to remain active and look to exploit market volatility due to the control and speed which they provide.
Access is another issue. Purchasing individual shares particularly in overseas markets may be very costly. Expensive shares such as Amazon or Alphabet might be prohibitively expensive for small accounts. Traders using CFDs are able to open a position with a smaller capital requirement. This does not mean they are risk-free, of course, but it does allow more individuals the opportunity to play in faster markets without having quite so much money tied up in the venture. This option seems closer to Czech traders who have less capital at their disposal but are well aware of the market.
Risk management also comes differently in the two styles. The old-fashioned stockholders would sit through market downturns with the belief that the market prices will improve with time. CFD traders have a shorter holding period and are more dependent on tools such as stop-loss orders and real-time analysis to manage downside. Such a proactive stance requires greater attention and discipline, yet it enables swift actions in unstable circumstances. The CFD model provides an extent of involvement that cannot be found in traditional investing, and it contains fast decisions, which some find comfortable.
The decision can also be steered by tax treatment and regulation. Czech traders should know that the profits under both the methods are taxable and that regulations can differ depending on the instrument as well as the location of the broker. It pays to know a little about the legal and financial implications of each before they dive in. Clarity around commissions, margin requirements and platform stability also contribute towards making the correct choice.
Czech traders do not have to stick to only one route at the end of the day. Most people will use a combination of both, long-term holdings in the traditional stock trading arena, and the active, short-term opportunities using share CFDs. It is all about understanding what each of these tools is used for, and how it can be used as a part of a larger strategy. As the Czech investors become more educated and have additional access to the global market, they are gradually learning to combine a cautious attitude with novel ideas to suit their own objectives and risk tolerance.
Ethan Rogers