CFDs vs share dealing
Learn more about the differences between contracts for difference (CFDs) and shares, and discover the benefits and risks of trading each instrument with our handy guide to CFD trading vs share dealing. The page offers a comparison of the two instruments.
Interested in trading CFDs with IG?
What’s the difference between CFD trading and share dealing?
One major difference between trading contracts for difference (‘CFD’) and share dealing is that when you trade a CFD, which is a leveraged product, you are speculating on the underlying market’s price without taking ownership of the underlying asset, whereas when you trade shares you need to take ownership of the underlying stocks.
Another difference is that you trade with leverage when trading CFDs, meaning you’ll only need to put up a fraction of the full value to open and maintain a position – the ‘margin’ – to gain full exposure. While leverage enables you to spread your capital further, your profit or loss will still be calculated on the full size of your position. That means both profits and losses can be hugely magnified compared to your outlay, and that losses can exceed deposits. For this reason, it is important to pay attention to the leverage ratio and make sure that you are trading within your means. When you trade shares, on the other hand, you’ll need to pay the full cost of your position upfront so cannot lose more than you invest.
Comparative features of CFD trading and share dealing
Both contracts for difference and share dealing offer ways to take advantage of price movements in financial markets – and both may form part of any investor’s portfolio. Take a look at the key points below to find out about the different benefits and risks of CFD trading and share dealing and decide if CFD trading is for you.
|Trade CFDs on a wide variety of financial instruments, including shares, indices, forex and commodities||Trade only shares and ETFs|
|Trade using leverage to spread your capital further, which can amplify your profits and losses||Pay the full value of your shares up front|
|Losses can exceed initial deposits on a given position||Limit risk to your initial outlay|
|Go long or short on a market’s direction||Deal only on rising prices|
|You can receive dividends. Your CFD positions may be credited or debited adjustments to take into account any changes from dividends.
For example, there are dividend adjustments on equity CFDs and stock index CFDs, which mean either a credit or debit to your position.
It is important to understand that there is no material impact on you by either crediting or debiting your account ledger with the exact amount you have incurred as an additional running loss / profit due to dividend adjustments
|You will receive dividends (if paid)|
|Deal around the clock on a number of markets||Deal only during stock exchange opening hours|
|No shareholder privileges||Receive shareholder privileges, such as voting rights on major company issues|
|No expiry dates (excluding forwards and options)||No expiry dates generally|
|CFDs can generally be traded round the clock. IG offers 24-hour CFD trading on forex and major stock indices. During the underlying market hours for other markets. IG also offers weekend trading on selected markets||Only when the related stock exchange is open|
|You need to pay overnight funding charges on all markets, except futures. Rollovers on futures. Other fees and charges may also apply||There are generally no fees to hold shares, but your broker may charge other administrative fees|
|CFD is commonly traded by those who are looking for opportunities
|Share dealing is commonly employed by traders who are looking to invest with a longer timeframe. Some traders also use share dealing for shorter term investments|
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