CFD trading vs investing
Discover the main differences between CFDs and investing, as well as the unique advantages and disadvantages of each. Want to learn more about trading CFDs with us?
Start trading today. Call +44 (20) 7633 5430, or email sales.en@ig.com to talk about opening a trading account. We’re here 24/5.
Contact us: +44 (20) 7633 5430
Start trading today. Call +44 (20) 7633 5430, or email sales.en@ig.com to talk about opening a trading account. We’re here 24/5.
Contact us: +44 (20) 7633 5430
What’s the difference between CFDs and investing?
The main difference between CFDs and investing is that CFDs are leveraged, while investing in shares is non-leveraged.
- With CFDs, you’ll be speculating 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, cryptos, 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 speculate 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 $100 CFD trade on HSBC shares, you’d put down a margin (often 20%) to trade the movement of HSBC’s share price – an initial sum of $20.
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 $100, not your $20 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 $1000 worth of shares, the maximum you could lose is $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.
CFDs vs investing: a comparison
| CFD trading | Investing | |
| Which markets are available? | 18,000* 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 3.331 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 speculate on prices rising, as well as go short to speculate 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.2 We also offer weekend trading on selected markets. 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. |
*IG Group's total markets
**International times may vary
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 speculate 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 CFDs and investing?
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 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.
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 us
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1 View our margin rates.
2 This excludes 6am to 4pm (UTC+8) on Saturdays. Only selected indices and the GBP/USD forex pair are available for weekend trading.
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^IG International Limited is part of the IG Group and its ultimate parent company is IG Group Holdings Plc. IG Group established in London in 1974, and is a constituent of the FTSE 250 index.
