Key takeaways
- A CFD is a derivative contract, not ownership of a company.
- Shares suit long-term investing; CFDs suit short-term, risk-managed trading.
- Check regulation and costs for both before you open an account.
A share is a small piece of a company. A CFD is a contract with your broker that pays the difference in price between opening and closing. They can look identical on a screen, but legally and financially they are different products.
| Real shares | Stock CFD | |
|---|---|---|
| Ownership | You own the shares via a custodian | You own a contract, not the share |
| Voting rights | Usually yes | No |
| Dividends | Paid to you | Cash adjustment, may be taxed differently |
| Leverage | None unless on margin | Built in, often high |
| Short selling | Needs borrowing | Built in; financing applies |
| Holding costs | Custody fees at some brokers | Daily financing on leveraged part |
| Best suited to | Long-term investing | Short-term trading with strict risk control |
Which one fits which goal
If you want to hold a company for years, real shares avoid daily financing and give you shareholder rights. If you want to express a short-term view on direction with a small capital outlay and you understand leverage, CFDs offer flexibility. Many retail accounts lose money on CFDs, which is why regulators require prominent risk warnings.
Questions to ask before choosing
- How long will I hold?. Weeks and months favour shares; minutes and hours may favour CFDs.
- Do I understand leverage?. If not, start with unleveraged products.
- Does my country allow CFDs for retail clients?. Several markets restrict or ban them.
- What are the total costs?. Compare commissions, spreads and financing for your expected holding period.