CFD trading vs investing

CFD trading and investing are both popular ways to get exposure to financial markets. Here, you’ll learn about the main differences between CFDs and investing, as well as the unique benefits of each.

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What’s the difference between CFD trading and investing?

CFD trading and investing are two different ways to take a position on an asset’s price movements. The main difference between CFD trading and investing is how you get exposure to an asset, like shares or forex. With CFDs, you’ll be speculating on price movements without taking ownership, while investing lets you take direct ownership of the asset in question.

There’s a wide selection of markets that you can trade on or invest in with us. When trading, you’ll be able to speculate on over 17,000 markets including shares, forex pairs, indices, commodities, options, futures and more. With investing, you’ll be able to invest in more than 16,000 global shares and exchange traded funds (ETFs).

CFD trading

CFD trading is often favoured by those with a short-term outlook. You can go long with a CFD to speculate on prices rising, or short to speculate on prices falling.

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 upfront. But, trading with leverage also carries risk because while it can amplify your profits, it can also amplify your losses.

CFDs are free from stamp duty, but you will pay capital gains tax on any profits. They’re also great for hedging a non-leveraged investment portfolio, as any losses can be offset against profits for tax purposes.1

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Alternatively, you can trade totally tax-free with spread bets.1 Much like CFDs, these enable you to speculate on the direction of an asset’s price movements, and your profit or loss is determined by the accuracy of your prediction and the size of the market movement.

Investing

Investing is often favoured by those with a long-term outlook. You’ll take ownership of the asset, meaning you’ll benefit from any upward price movements.

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 value of the position.

To make an investment, you can buy shares in a company or an ETF outright. This’ll give you ownership of the assets, meaning you’ll stand to benefit from any price increases. You could also receive dividends and voting rights if available to shareholders.

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Remember that while trading CFDs with leverage will increase your exposure, this means that your losses will be amplified as well as your profits. That’s because any profit or loss is calculated using the full size of the position, rather than the initial cost or deposit to open it.

CFDs vs investing in brief

CFD trading Investing
Which markets are available? 17,000+ markets including shares, forex, commodities, indices, cryptos and futures. 16,000+ global shares and ETFs.
What are the costs to open a position? Deposits on leveraged trades are 20%-25% of the total position size.2 You’ll pay the full value of the position upfront.
Can you go short? Yes, you can go long and speculate prices rising, as well as short to speculate on prices falling. Not as standard.
Are there any tax benefits? You won’t pay stamp duty, but you will pay capital gains tax on any profits. Losses can be offset against profits as a tax deduction.1 You’ll pay stamp duty on each deal and capital gains tax on your profits. Share positions opened using a stocks and shares ISA or SIPP are tax-free.1
What are the trading or dealing hours? 24-hour CFD trading on forex and major stock indices.3 We also offer weekend trading on selected markets. Access our exclusive extended hours on over 70 US shares. Otherwise, deal when the underlying exchange or market is open.
Do you get shareholder privileges and dividends? No shareholder privileges, but positions are adjusted to offset changes from dividends. With shares and ETFs, you’ll receive dividends if they’re paid. Owning shares may also grant you voting rights in company decisions.

Find out more about the differences between CFD trading and investing in detail

Share CFDs vs share dealing

Share CFDs and share dealing are two different ways to take a position on the value of a stock or ETF. When you trade CFDs with us, you’ll also get access to forex pairs, indices, commodities, cryptocurrencies, futures, options and more.

These extra markets aren’t available with share dealing, but you’re still able to take a position on over 16,000 global stocks and ETFs. You’ll need to commit the full value of the position upfront when you’re share dealing, but with CFDs you can open a position on leverage – often with a deposit worth just 20% of the full position size.2 But, remember that while leverage can increase your profits, it can also increase your losses.

Comparison of a share CFD vs share deal

Buying 2000 Barclays shares

Share CFD Share dealing
Barclays share price 208p 208p
Our price 208.1 (0.1 spread) 208p
Deal Buy 2000 share CFDs at 208.1 Buy 2000 shares at 208p
Buy 2000 shares at 208p £832.40 (based on 20% margin) £4,160
Tax: stamp duty1 £0 (Not applicable to CFDs) £20 (or £0 in an ISA or SIPP)
Closing price Sell at 229 Sell at 229p
Tax: Capital Gains Tax (CGT)1 £72 £72 (or £0 in an ISA or SIPP)
Profit £346*
(20.9pt increase x 2000 shares = £418, less capital gains tax)
*Not including commission fees
£328*
(4580 – 4160 = £420, less stamp duty and capital gains tax)
*Not including commission fees

The differences between CFD trading and investing in detail

CFD trading Investing
What is it? Trading on an underlying asset’s price rising or falling – without owning the asset outright. Taking direct ownership of a physical asset such as shares, or owning shares in an ETF.
What are the position expiries? No expiry dates (excluding forwards and options). No expiry dates.
Are there any tax benefits? No stamp duty, but you do pay capital gains tax. Losses can be offset against profits as a tax deduction.1 You’ll pay stamp duty on each deal and capital gains tax on any profits. Share positions opened using a stocks and shares ISA or SIPP are tax-free.1
What are the trading or dealing hours? 24-hour CFD trading on forex and major stock indices. We also offer out-of-hours and weekend trading on selected markets Access our exclusive extended hours on over 70 US shares. Otherwise, deal when the underlying exchange or market is open.
Will you have to pay overnight funding? Overnight funding on all markets, except futures, which have rollovers. No – because you own the asset outright.
How does IG profit? We profit primarily from commission, spreads and funding, and we hedge the majority of net client exposure.
We accept a low level of market risk, from which we can make a small profit or loss. The outcome of a client’s DMA trade never has an impact on our profit or loss.
We make our money from the commissions you pay on each share dealing position. The outcome of a position makes no difference to our bottom line.
What’s the usual timeframe? Intra-day, daily, medium-term. Long-term buy and hold.
Will you get dividends? No, we make a dividend adjustment on equity and stock index CFDs. Receive dividends from shares and ETFs if they’re paid.
Can it be used for hedging? Yes, open a short CFD position to hedge a long share investment. Yes, but other products (like CFDs) could be more cost effective.
Which markets are available? 17,000+ markets including shares, forex, commodities, indices, cryptos and futures. 16,000+ global shares and ETFs.
What are the charges? A spread on all markets except shares. We charge a commission on share CFDs, but no spread. Funding adjustments (excluding futures). Deal with zero commission on US shares and £3 on UK shares.4
Which platforms are available? Web-based platform, mobile trading app, MT4. Web-based platform, mobile trading app.
Will you get direct market access (DMA)? DMA with CFDs is only available to professional traders for forex markets. Yes – deal direct into the order books of major exchanges.

FAQs

Yes, you can take a position on shares by CFD trading or investing. With investing, you can profit from upwards movements in an asset’s price. Trading CFDs enables you to speculate on prices rising by going long, or falling by going short.

The main 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 speculate 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.

CFD trading requires less capital upfront than share dealing because it is a leveraged product. Leverage gives you full market exposure for an initial deposit, which is often just a fraction of the full position size. But, leverage can increase both your profits and your losses.

On the other hand, when you buy a physical share, you will pay the full cost upfront. This means that your initial expenditure will be greater when share dealing compared to trading share CFDs.

Learn more about our costs and charges

When you trade CFDs, you won’t have to pay stamp duty as you do not own the underlying shares. You will need to pay capital gains tax on any profits, but you can offset your losses against your profits for tax purposes.1

Alternatively, if you decide to invest in shares, you’d pay stamp duty on each investment and capital gains tax on any profits. The exception is investments made via a tax-free stocks and shares ISA or SIPP.1

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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1Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2Deposits on leveraged trades are 20&-25% for 99.14% of tier-one shares (correct as of 1 June 2020). For more information, view our share trading margin rates.
3This excludes the 10 hours from 10pm Friday until 8am Saturday. Only selected indices and the GBP/USD forex pair are available for weekend trading.
4Our best commission on US and UK shares is available to clients who opened three or more positions on their share dealing account in the previous month.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.