Trading stocks on MT4 is now easy as more and more brokers offer stock CFDs. Traders these days have the choice to choose between the forex instruments and stocks among other assets.
This diversification allows MT4 traders the option to choose between different asset classes for online trading.
You can basically apply the same technical analysis that you use when trading forex. Trading stocks on Metatrader 4 is ideal for short term speculation only.
You cannot use the stock CFDs on Metatrader 4 for long term investment purposes such as buy and hold.
Stock CFDs on Metatrader 4 allows for diversification
If you are wondering why a trader would want to trade stocks on MT4, the answer is simple. Diversification of trading opportunities!
There are times when the currency markets may remain in a prolonged range. This means that there is no clear trend in the markets. During such times, stock CFDs can offer trading opportunities rather than having to wait for the foreign exchange markets to pick up the trend.
However, there are some significant differences between how the stock CFDs behave comparing to actual trading in stocks.
In this article, we take a look at the benefits of trading stocks on the metatrader 4 trading platform. You will also learn about some major differences and how to get started with Metatrader 4 stock trading.
Differences between investing in stocks and trading stocks on MT4 platform
If you think that you are actually trading stocks via the Metatrader 4, then you are wrong. While these instruments do exist, it is not exactly right that you are trading stocks.
On the contrary, you are trading the stock CFD’s on the MT4 platform. And this is where the difference starts.
Before we go any further, it is important to understand how the stock markets work.
Stocks are traded at an exchange. Example of these exchanges include the New York Stock Exchange (NYSE), or the NASDAQ and so on.
A stock exchange is a centralized trading place where transactions to buy and sell shares in a company are settled. It is expensive to gain a seat at the trading exchange. Hence, the retail stock trader places their buy and sell orders via a stock broker.
A stock broker aggregates all the trades from their clients and executes these trades at the stock exchange.
You can trade stocks via your stock broker or through your bank as well. When you buy stocks this way, you actually end up owning the shares in the company.
This entitles you to some benefits such as voting rights (if you have a significant amount of holdings), dividend payments and so on.
But when it comes to trading stocks on the MT4 platform, it gets a bit different. In essence, you are trading stocks, but via the CFDs.
Quick intro to stock CFD trading on MT4
CFD stands for Contract for Difference in the financial markets parlance. It is a derivative product which derives the price from the underlying asset or instrument.
Stock CFD’s work the same as with forex trading. You are not trading the spot markets, but rather trading the spot CFD markets. There is also another difference between stocks and forex on CFDs. With forex you are basically trading the currency pairs. So there are two currencies involved.
In stocks trading on MT4, you are essentially buying or selling the stocks of the company.
Because CFDs are derivative products, they are purely speculative or hedging instruments. When you own a stock CFD, you do not have actual ownership in the underlying security. You only profit or lose depending on how the underlying financial markets are moving.
For example, if you place a trade in the actual stock, you end up owning the stock. On the other hand, if you trade a stock CFD, you are merely betting on the direction of the price movement.
While this may not ideal for some, it has its own benefits.
Stock CFD trading has its own benefits of course, which will be covered in the later sections of this article.
How to access stocks on MT4?
To access the stock CFD instruments on your Metatrader 4 trading platform, you need to first check if your forex broker allows access. Not many forex brokers offer stocks trading and hence it is better to check upfront.
The choice of stock CFDs can also vary from one broker to another. Some forex brokers may offer a great choice of stock CFDs that range from US to European shares and many more.
If you do find out that your forex broker offers trading on stocks, then you can go ahead to access these instruments directly from your MT4 forex trading platform. The Metatrader 4 platform is relatively easy to use.
If you have any experience in forex trading, then it should not be very difficult to switch to trading stocks on MT4.
To access the stocks instruments, go to the Market Watch window in your Metatrader 4 platform. Right click on the Market Watch window and select symbols. This will open the symbols window which lists all the instruments offered for trading in your MT4 forex trading platform.
From the symbols window, you can now select the stocks that you want to trade.
Depending on your forex broker, the stocks can be categorized into US stocks, European stocks, and so on. Expand each of these groups by clicking on the + symbol and individually add the stocks to your Market watch window.
Instrument specifications on your Metatrader 4 trading platform
While you may be familiar with the instrument specifications with forex trading, it is not the same when trading stocks on metatrader 4.
You need to be careful about this because the specifications can change depending on the instrument that you want to trade in MT4.
To access the instrument specifications in MT4, just right click on the stock instrument listing in the Market watch and select specifications.
The below picture shows how the stock CFDs are available for trading in a MT4 trading platform.
This will open the instrument specification window in the MT4 platform. It is recommended that you access the instrument specifications before you start trading stock CFDs.
What are the important specifications to bear in mind when trading stocks in Metatrader 4?
The first thing to pay attention to is to look at the lot specifications. Unlike forex trading, the lot size is different when trading stocks. The stock price also plays an important role in CFD trading.
Hence, get an idea of what the minimum contract size is. This will give you an idea of how much money you need in margin.
The next step is to look at the swap points or the rollover. In forex trading you already know how the swap points are calculated. These are also known as the rollover fees.
While stocks don’t specifically have the swap points, they still attract overnight financing costs. Hence, look at the long and short swap points before you trade stock CFDs.
These overnight fees will be added or deducted if you have a position open overnight in any of the stock CFDs that your forex broker offers. When trading stock CFDs these fees can easily eat up into your overall PnL.
Below is an example of a stock CFD instrument specification in the MT4 platform.
Are there any other trading platform for stock trading?
Metatrader 4 is not the only platform available for trading stock CFDs. In fact, you can also access these instruments on other platforms such as the Metatrader 5 platform too.
The Metatrader 5 is a relatively new but an advanced trading platform. The MT5 offers better choices for trading, but overall the basics remain the same.
Other trading platforms include cTrader as well, which is also quite popular. At the end, the common factor to all these stock trading platforms is that they are easy to use.
There is a good level of charting interface that allows you to do your own technical analysis study and also to trade directly from the charts.
Another main benefit is that you can also make use of automated trading strategies. This includes using expert advisors to trade on your behalf. As you will see, trading CFDs is not that different from trading forex.
Almost all these trading platforms, such as the Metatrader 4, Metatrader 5, cTrader and others allow you to create a demo account. This is a great way to test the financial markets and trade the stock CFDs.
Advantages of trading stocks on MT4 platform
- Trading stock CFDs is a lot easier as you do not need to put up huge money upfront. CFDs are leveraged instruments. Hence, you can gain access to trading stock CFDs on MT4 or even the Metatrader 5 trading platform with ease.
- With stock CFDs you are able to both go long and short in the market. Now this is not possible when trading actual stocks. You can only sell the stocks that you have already purchased before. If you want to short the market, then you will have to borrow the shares from the broker and give it back to them after you close the trade.
- Short selling in the stock markets is often frowned upon. Depending on the jurisdiction, it may also require additional reporting. But with stock CFDs this is not a requirement. You can easily go short just as you would go long.
- Traders will not have any ownership on the stocks and this helps you from additional paperwork when trading stock CFDs.
- You can apply good technical analysis and other charting tools to draw up a trading plan when trading the stock CFDs.
- Using expert advisors will help you to automate your trading strategies
Disadvantages of trading stocks on MT4
- If you want to become a long term investor, that is to buy and hold the shares for a prolonged period of time, stock CFDs are not suitable. This is because the stock CFD instruments attract additional fees.
- Stock CFD trading is mostly speculative in nature. This means you can trade only in the short term. Using long term trading strategies such as holding the stock over a prolonged period of time does not work.
- When trading CFDs in stocks, you do not get any benefits such as dividend payments. This means that you are merely speculating on the price movements. So if your trading purpose is to actually own the underlying stock, then CFD trading in stocks is not suitable for you.
- Although CFD trading may seem easy, CFDs are complex instruments. And because of leverage, think whether you can take the high risk of trading such instruments.