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Trading CFDs vs Trading Shares

CFD trading can offer a flexible alternative compared to many other traditional methods. Discover the advantages and how trading CFDs with Equiti Global Markets differs from traditional shares investing.

CFD and Shares Trading Overlap

There are many similarities between CFD trading and buying shares through a traditional broker. Both:

  • Allow access to global markets with thousands of trading opportunities
  • Offer the ability to take advantage of rising prices by going long
  • Receive dividend and interest adjustments
  • Require Capital Gains Tax to be paid

The main way CFD trading and traditional shares trading differ is that with CFDs you do not own the underlying asset; what you buy is a contract between yourself and the CFD provider. This does mean that with traditional shares trading there are a few advantages of having physical ownership of the assets, such as being able to attend AGMs, voting rights and further shareholder privileges.

Due to not owning the underlying assets with CFD trading, it does provide a more flexible option with certain advantages.

Leverage and Pricing

CFDs are a leveraged product, meaning you only need a low percentage of the total value to make a trade. With traditional shares trading you need to pay the broker the full amount to cover the cost of the shares. Leverage can therefore allow greater exposure and maximise profits when trading CFDs. This works both ways though, so losses can also be magnified and exceed deposits.

Go Short with CFD Trading

You can bet against the market with CFD trading if you think prices are set to fall. It offers the ability to go short, so you can open a position on an asset of the market’s value that you expect will fall when you feel it is overpriced. This also means you can hedge against any traditional shares you do own, diversifying your portfolio in the process. The greater the profit will depend on how much more the market moves in your chosen direction, whether rising or falling.

Tax Advantages

As a CFD is a derivative product where you do not own the underlying asset, it is currently exempt from stamp duty, unlike traditional share trading. Along with leverage, this means you can access global markets through CFD trading with much lower starting capital.

To begin CFD trading, open an account with Equiti or practice with a free demo. For further information fill out the contact form below.