Investing and CFD trading main difference is the way you get exposure to assets. When trading through CFDs you don't own the asset. When investing, you take ownership of the assets.
|Best for active, short-term traders||Long-term, buy and hold traders|
|Use of leverage||Leverage isn't available|
|Capital gains tax (losses can be offset)||Capital gains tax|
|No stamp duty tax (check with local authority)||Stamp duty tax|
|24h trading on major stock indices and forex||Specific trading hours|
|No stockholder privileges||Some shares grant voting rights|
|No dividends||Some pay dividends|
CFD trading is best suited for active traders or better yet, day traders. If you need to learn about CFD basics, check out our article here. With CFDs you can go long or short on positions. The main benefit of trading CFDs is the use of leverage. With leverage, traders get full exposure to the market, while depositing a small amount of capital. While leverage increases profit, it also increases risk. CFDs are great for hedging non-leveraged investments.
Traders don't pay stamp duty on CFDs. Capital gains tax is applicable.
Investing is a long-term strategy, suitable for buying and holding positions over a longer period. Investors take ownership of the asset and profit from upward price movements.
Because leverage isn't available, you have to put the full amount of the position upfront. The maximum risk is the amount invested.
Traders can invest by buying shares or an ETF. You get ownership of the asset and receive dividends, voting rights if this is available. If the price increases, you profit.
Stock CFDs vs Buying Stock
The main difference is how you are exposed to the asset in your position. With CFDs you also get access to other assets like currency pairs, indices, cryptocurrencies, commodities, futures, options, and more.
Example of a CFD share trade vs share deal
|CFD trade||Share Deal|
|Broker price||409.2 (0.2 spread)||409p|
|Position Size||Buy 300 share CFDs – £245,52 (20% margin)||Buy 300 shares – £1,227|
|Profit||£122,4 minus applicable tax and broker commissions||£123 minus applicable tax (capital and stamp duty)|