Short-term stock trading: Comparing CFDs and stock exchanges - Which one is right for you

Short-term stock trading is a highly popular investment strategy nowadays. However, there are more than one method to do it, each with its own strengths and weaknesses.

Accelerate your money flow: The necessity of short-term stock trading

In the stock market, investors can choose various ways to profit. Some hold stocks to receive dividends, some seek high-growth startup stocks, but traders aiming to generate continuous cash flow will opt for profit from price volatility—that is, short-term trading.

This method relies on timing buy and sell prices within a short period, from fractions of a second (HFT) to daily or weekly trading. It requires less capital but demands speed and precision in decision-making.

Two channels of stock trading: Real stocks or derivatives

Those interested in short-term stock trading have two main options: trading actual stocks on the stock exchange or trading through derivatives like CFDs.

Channel 1: Real stocks on the stock exchange

When buying real stocks, traders become owners of the shares and enjoy associated benefits, such as voting rights at shareholder meetings, warrants, or stock splits.

Common limitations:

The first issue is requiring a large amount of capital. Buying Thai stocks has a minimum of 100 shares per transaction. If the stock price is 200 THB, you need 20,000 THB plus a minimum commission of 53 THB.

The second issue is liquidity and price constraints. Stocks priced between 50-100 THB require price increments of 0.25 THB. Some stocks also have low trading volume, making entry and exit difficult.

Cost considerations: This is a major problem for frequent traders. The average commission is 0.278% of the trading value, covering both buy and sell sides. For a 1 million THB trade, the commission can be up to 5,400 THB.

Another downside is profitability only in bullish markets; you cannot profit from falling prices. Additionally, withdrawal procedures take time, such as T+2, and account opening requires multiple documents.

Channel 2: CFD - Stock derivatives

CFD (Contract for Difference) allows traders much more freedom of movement.

Clear advantages:

First, high leverage enables higher profits. With a small margin deposit, you can open positions. Using high leverage can multiply gains (but also losses).

Second, profits can be made in both rising and falling markets, broadening profit opportunities under all market conditions.

Flexibility is a major advantage. CFD traders have much higher agility than real stocks, with quick order execution without price slippage, which is crucial for short-term traders.

T+0 withdrawal system means profits can be withdrawn immediately once realized; timing depends on the broker’s system.

Transparency: The market is based on reference (currency exchange rates, commodities, indices), and is a large financial market with no one able to manipulate it.

Easy and quick account opening via CFD: No complicated documents; online registration can be completed within minutes.

Disadvantages to be aware of:

CFD traders do not own the stocks, so they do not receive rights associated with actual ownership.

Limited to foreign stocks: Only large companies like Amazon, BABA, AAPL. Currently, Thai stocks are not available for CFD trading.

Broker risk: Thailand does not have formal regulations for CFDs. Most brokers are foreign, so it’s essential to verify their credibility to avoid scams.

High leverage risk: While leverage can amplify profits, it also increases potential losses proportionally.

Comparison of both methods

Which one to choose?

For investors with sufficient capital who want to benefit from stock ownership and manage risks well: trading real stocks on the stock exchange may be the best choice.

For those aiming to generate cash flow through short-term trading: CFD trading offers lower costs, higher flexibility, and greater profit potential.

Neither method is inherently right or wrong; it depends on your goals and trading style.

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