We are pleased to publish the following guest post, courtesy of Jerry Chen, Research Strategist at Pepperstone.

Investing in stocks through CFDs has become very popular today mainly due to the vast number of opportunities that exist in the markets and the easy access that traders at the retail level enjoy. To that extent, Pepperstone is thrilled to announce that their Share CFD offering is expanding! Traders can now access and trade an additional 50 Hong Kong Shares CFD from their Pepperstone portfolio.

In this short article we will share key matters you need to know to invest and operate in the CFD stock market plus where to gain exposure to a wide range of HK equities with leverage.

First of all, we must always keep in mind that, when we talk about investing in shares, we are talking about companies which have gone public and, in exchange for certain capital, they grant a percentage of ownership to investors.

The main difference between CFDs and investing in the actual stock is that CFDs are leveraged, while investing in shares is non-leveraged and does not permit the disposition of the asset as quickly as a CFD does- with a click of a mouse.

With this in mind, the first consideration that we must take into account when investing in stocks is the vehicle that we will use to invest in these companies.

Among the main formats through which one can invest in stock CFDs are CFD stock indices, ETFs and individual stocks. Obviously, with Pepperstone you have access to all these instruments with leverage and with the easy possibility to go long or short (Betting on a rise or fall in the instrument).

Having mentioned this, we will proceed to cover the first vehicle discussed, stock indices.

Invest in CFD indices

The first consideration when using stock indices is that not all stock indices are calculated in the same way. Although there is a false belief that all global indices are the same, the reality of things is that they are composed and calculated differently and it is important to know the methodology they use, since this can give greater relevance to certain components within the index.

Most common types of indexes:

●      Price-weighted index (DJIA, NIKKEI 225)

●      Float Value-Weighted Index (S&P 500, DAX 40)

●      Unweighted indices

The second point to consider when using indices is that not all indices have the same sector exposure.

For example, while London’s FTSE 100 has primary exposure to financials, with this accounting for 18% of its value, the US NASDAQ 100 has primary exposure to technology, with it accounting for 56% of its value. . Therefore, one must also be aware of what types of companies are the ones that prevail in the index, since this can dictate what type of global dynamics affect the index.  Pepperstone carries over 25 various CFD indices you are welcome to explore.

Invest in CFD ETFs

These instruments work like any other stock which is listed on the stock exchange. Although using indices provides great diversification, there is no better vehicle which provides us with a specific market exposure with a healthy diversification than the Exchange Traded Funds.

ETFs are financial vehicles mainly used to obtain market exposure to a certain market theme (Financial Sector, Companies with certain financial characteristics such as payment of dividends) and Pepperstone recognizes their value by providing access to over 100 of them.

Invest in CFDs of individual stocks

Many times the company has been accused of not offering access to actual stocks, but rather their CFD equivalent, but traders do enjoy the advantages of CFDs like access to the underlying asset at a lower cost than buying the asset outright, ease of execution, and the ability to go long or short.

Pepperstone has since made strides towards increasing its already packed offering by firstly providing access to CFDs of 199 AU, 86 DE, 190 UK, a whooping 890 US Shares and now an additional 50 Hong Kong Shares CFD to their Pepperstone portfolio.

We previously saw how by diversifying our operations through an ETF we avoid being dependent on the result of a single action. On the other hand, if we are going to invest in a stock at an individual level, we can not only bet on a market theme, bur also run analysis in relation to why that company / business is the best in an industry. Here ratios commonly used to know the state of that company are EPS (Earnings per share), ROE (Return on investors’ capital). These will allow us to know which company is better positioned and take action per our opinion.

Razor sharp pricing, low commissions, deep liquidity and exposure to variety like Tencent, Geely, Ping An, Alibaba and JD.com is what makes Pepperstone  traders exited to participate in the stock CFD market. Find the full Share list here to explore its potential today.

CFDs are complex instruments and come with a high risk of losing money quickly due to leverage. 74%-89%% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.