What Is CFD Trading vs Investing?

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.

CFDInvesting
Best for active, short-term tradersLong-term, buy and hold traders
Use of leverageLeverage 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 forexSpecific trading hours
No stockholder privilegesSome shares grant voting rights
No dividendsSome pay dividends

CFD trading

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

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 tradeShare Deal
Price409p409p
Broker price409.2 (0.2 spread)409p
Position SizeBuy 300 share CFDs – £245,52 (20% margin)Buy 300 shares – £1,227
Exit price450p450p
Profit£122,4 minus applicable tax and broker commissions£123 minus applicable tax (capital and stamp duty)

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Ziga Breznik

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About the author

Ziga Breznik is the owner and head of research at PublicFinanceInternational.org – he is an active investor in the forex, crypto and stock markets – he has seen trading platforms disappear along with his investments – especially during the “crypto boom”. Ziga learned the hard way that finding a reputable and trustworthy online brokerage is key to long-term success in the financial markets. He founded PublicFinanceInternational.org as a platform where he shares his research with one goal in mind: to provide unbiased and trustworthy online brokers reviews.