Stocks vs ETFs: what are the differences?

Last Update Thursday 20 August 2026 13:48

What are the differences between stocks and ETFs?

The difference between stocks and ETFs is that a stock is a single tradeable asset (shares that track a company's performance), while ETFs track the performance of a range of markets, including multiple shares.

When you invest in a stock, you can take a position in a single company like Microsoft, take ownership, get voting rights, and earn dividends if the company grants them. It's relatively risky to get exposure to a single company, as your entire outlay could be affected if the share price falls, and there's higher volatility and more liquidity.

When you invest in an ETF, you take a position in a collection of different stocks, bonds or other securities, like the iShares Core S&P 500 UCITS ETF. You'll have shareholder rights and earn dividends if the ETF grants them, with the risk spread across a number of holdings that form part of the fund.

What is a stock?

A stock is the collective name for all the shares that a single company lists on an exchange. It's a financial security that represents part-ownership in a publicly traded company. A company typically applies to list on an exchange to raise capital, making its stock available to investors via an initial public offering (IPO), special purpose acquisition company (SPAC), or direct listing.

With us, you can invest in the stock directly or trade on the share price rising and falling. When you invest, you buy and hold the shares with a long-term outlook, hoping the company's shares appreciate over time. Once you take ownership, you become a shareholder, have voting rights and get dividends if the company grants them. When trading, you use derivatives like spread bets and CFDs to speculate on the price direction, going long if you think it'll rise or short if you think it'll fall.

What are the risks involved with investing in shares?

Since your profit or loss is based on how the company performs, you face the risk of a significant loss on your position if the share price falls. Factors that cause share prices to fall include operational issues, changes in management, and supply and demand, alongside external risks such as market risk, currency risk, inflation, interest rates and liquidity. Remember, when you invest, your risk is capped at your initial outlay.

What is an ETF?

An exchange-traded fund (ETF) is an investment instrument that tracks the performance of a range of markets like stocks, bonds, indices, sectors and commodities. There are two main types: physical ETFs, where you track an asset by holding the constituents that form part of the investment, and synthetic ETFs, which mimic the movement of the underlying market without holding the physical index.

ETFs are popular because they enable you to gain exposure to an entire sector or industry from a single position. If you have a long-term investment horizon, you can buy and hold ETFs on a wide range of markets. With a short-term outlook, you can trade on a wide range of ETF markets using spread bets or CFDs. Learn more in our guide on how to invest in ETFs.

What are the risks involved with investing in ETFs?

Even though many ETFs have positive returns over the long term due to their diversity, there are still risks to consider, including tax risk, tracking error and political risk. Where an ETF is focused on a particular industry like technology, you'd face concentration risk in that single market. Higher risk can come with higher potential reward, but the probability of loss also increases.

With us, you can invest in ETFs via our share dealing account or managed portfolios. Our share dealing account enables you to invest in a wide range of ETFs, or you can get exposure using our Smart Portfolios, which are expertly managed and built to suit your financial goals and risk appetite.

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ETFs vs stocks: advantages and disadvantages

ETFs offer diversified risk, require little investing expertise, can pay dividends and can be expertly managed. Their disadvantages are generally lower returns, as they're less volatile than stocks, and the 'creation and redemption' mechanism that makes it hard to outperform individual stocks.

Stocks offer higher potential returns, dividends and voting rights. Their disadvantages are the high risk from stock price fluctuation and volatility, the effort required to research and analyse the market, and the tax payable on any capital gains. For more on tax, see our capital gains tax guide.

Should you invest in stocks or ETFs?

The right choice depends on your circumstances. Stocks suit a higher risk appetite, a high return expectation, and investors willing to put in more research and analysis time. ETFs suit a lower-to-medium risk appetite, a lower return expectation, and those wanting significantly less research. Both are taxable, and both can be traded and invested in when the market is open and after hours. Holding either within a stocks and shares ISA shelters your gains and income from tax, up to the annual £20,000 allowance.

How to start investing in stocks and ETFs

Decide whether you want to open a share dealing account or managed portfolio, choose between investing in ETFs or stocks, fund your account, look for your opportunity, then open and monitor your investment.

Our investment account gives you access to thousands of global markets, including shares, ETFs and investment trusts. If you're a beginner, ensure you have a firm grasp of your asset of choice and can practise first with a demo account, which simulates the market in real time. You'll deposit funds using any card or bank account registered to you — when using a credit or debit card you'll need at least £500, while there's no minimum for a bank transfer.

FAQs

Ready to start investing? Open a share dealing account or ISA to invest in stocks and ETFs, or practise on a demo account first. For more, see our guides on how to invest in shares and best global ETFs.