CFD trading vs stock
Discover the main differences between CFD trading and stock investing, as well as the unique advantages and disadvantages of each. Want to learn more about trading CFDs with us?
Call +65 6390 5133 between 9am and 6pm (SGT) on weekdays or email accountopening@ig.com.sg for account opening enquiries.
What’s the difference between CFDs and investing?
The main difference between CFD trading and investing is that CFDs are leveraged, while investing in shares is non-leveraged.
- With CFD trading, you’ll be taking a position on price movements – without taking ownership – and putting a margin amount down as leverage to open your position. This increases both profits and losses
- When investing in shares (also known as share dealing or share trading) you’re taking direct ownership of the asset, for example company shares. You’ll need the full value of the position upfront.
Remember, you can only trade derivatives with us via CFDs as we do not offer investing. We offer CFD trading on shares, indices, commodities, cryptos1, forex, options, futures and more.
CFD trading explained
When you trade CFDs, you’re entering into a contract for difference (CFD), which is an agreement to exchange the difference between the opening and closing price of your position.
CFDs are advantageous if you’re a trader with a short-term outlook. This is because CFD trades enable you to take a position on the price of an asset by going long (buying) or going short (selling).
One of the main benefits of CFD trading is the ability to use leverage, giving you full market exposure while only having to commit a deposit to open your position (known as a margin). So, if you wanted to open a S$100 CFD trade on HSBC shares, you’d put down a margin (often 10%) to trade the movement of HSBC’s share price – an initial sum of S$10.
But, trading with leverage carries risk. While it can amplify your profits, it can also magnify your losses. That’s because any profit or loss is calculated using the full size of the position, rather than your margin amount. So, with our HSBC example, your profit or loss would be calculated on the full S$100, not your S$10 margin. Learn how to manage your risk.
Investing explained
Please note that this explanation of investing is for informational purposes only, as you can’t invest on our platform.
When you invest, you’re taking direct ownership of shares in a company or ETF. Because of this, investing is popular among those who have a positive long-term outlook on that share or ETF. Any person who buys shares outright will also receive possible dividend payments and gain voting rights.
Leverage isn’t available when you’re investing directly, so you’ll have to commit the full value of the position upfront. But, this also means that your maximum risk is capped at the total cost of your investment. For example, if you bought S$1000 worth of shares, the maximum you could lose is S$1000 – assuming that the share price falls all the way to zero.
Remember that, when you invest, you can only profit when share prices or the value of an ETF rises above the price that you opened your investment. This is different to CFD trading, which enables you to profit from shares or ETFs that are rising or falling in value.
CFD trading vs investing: a comparison
| CFD trading | Investing | |
| Which markets are available? | 13,000 markets including shares and ETFs, indices, forex pairs, commodities and more. | Not available with us. |
| What are is the deposit required to open a position? | Initial outlay for leveraged trades is 20%-25% of the total position size or, in the case of forex CFDs, from 5%2 However, with share CFDs, it’s important to remember that you would pay a commission amount after opening the position. | Investors pay the full value of the position upfront. However, not available with us |
| Can you go short? | Yes, you can go long and predict on prices rising, as well as go short to predict on prices falling. | Not as standard. To short stocks with traditional short-selling, investors need to borrow shares, likely from a broker, sell those shares and then buy them back later. However, we don’t offer this. |
| What are the trading or dealing hours? | 24-hour CFD trading on forex and major stock indices.3 However, all spot positions left open after 10pm UK time are subject to additional overnight funding charges. | Investors can buy shares when the underlying exchange or market is open. However, investing isn’t available with us |
| Do you get shareholder privileges and dividends? | No shareholder privileges, but positions are adjusted to offset changes from dividends. | Yes, but investing isn’t available with us. |
FAQs
Can I open a position on a company’s shares by using CFDs or investing?
With us, you can take a position on shares with CFDs (contracts for difference). CFD trading lets you take a position on share prices without having to own them. You can profit from prices that are rising by going long, or from prices that are falling by going short. You can’t invest in company shares with us.
What is the difference between share CFD trading and investing in shares?
One difference is that trading share CFDs won’t give you ownership of the shares in question, while share dealing will. But share CFDs do enable you to take a position on share prices rising by going long, as well as falling by going short. This isn’t available when investing in shares, but you can profit from upwards movements in a share’s price.
For this reason, CFDs are also more complex financial products, which can be higher risk than investing. This is because, with CFDs, your profits and losses can far outweigh your initial outlay. Remember, we don’t offer investing on our platform.
Develop your knowledge of CFD trading with IG
Find out more about CFD trading and test yourself with IG Academy’s range of online courses.
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1 Cryptocurrencies are not regulated by the Monetary Authority of Singapore (MAS) as they are not legal tender or securities. Investors should be aware that they do not have any legislative protection when they deal with cryptocurrencies and related investment products. If you choose to invest in unregulated products, you will not be protected under MAS regulations. Please ensure that you are fully aware of the risks involving cryptocurrencies and if in doubt, you should consult an independent financial adviser under a separate engagement. To find out more information about cryptocurrencies and risks, you can go to the MoneySense website here.
2 View our margin rates.
3 Normal dealing hours for all pairs are from 21.00 (London time) on Sunday until 21.59 (London time) on Friday, with the exception of emerging-market pairs, which operate on different schedules.
Indices are available for dealing 24 hours a day, between 23.02 Sunday and 22.15 Friday (London time) each week. This will be between 07.02 Monday and 06.15 Saturday (Singapore time) on non-Daylight Savings periods and between 06.02 Monday and 05.15 Saturday (Singapore time) during Daylight Saving periods. Other indices are offered only when the underlying market is open. Please ask dealers for information about public holidays.
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Disclaimers:
- All forms of investments carry risks and trading CFDs may not be suitable for everyone. CFDs are leveraged instruments and can result in losses that exceed deposits, so please ensure that you fully understand, and are aware of, the risks and costs involved. Refer to the Risk Disclosure Statement and Risk Fact Sheet.
- IG Asia Pte Ltd (Co.Reg.No. 200510021K) is regulated by the Monetary Authority of Singapore and holds a capital markets services licence for dealing in capital markets products that are over-the-counter derivatives contracts and is an exempt financial adviser.
- IG provides an execution-only service. The information in this advertisement does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of or solicitation for a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. You should consider your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
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