CFD Trading Vs Shares Dealing
CFDs are a popular alternative to physical shares dealing for a number of reasons.
View the major features of CFD trading in the table below.
| Feature | CFD trading | Shares dealing |
|---|---|---|
| Ability to go long - take advantage of rising prices | Yes | Yes |
| Ability to go short - take advantage of falling prices | Yes | |
| Ability to hedge - go short and mitigate against potential losses in your shares portfolio | Yes | |
| Leveraged trading - gain a large exposure for a fraction of the value | Yes | |
| Immediate dealing - instant trading both in and out of a market | Yes | Yes |
| Access to other asset classes - such as Indices, FX etc | Yes | |
| Access to global shares - trade over 4,500 different shares from around the world | Yes | Yes |
| Receive dividend and interest adjustments | Yes1 | Yes |
| Physical ownership - benefits include the ability to attend AGMs | Yes |
¹Positions are adjusted to reflect dividends.
Leveraged access
With traditional shares dealing, you’d have to pay your broker the full value of the shares you want to purchase. For example, if you‘d like to purchase $10,000 Facebook shares, you’d have to deposit the full $10,000.
Importantly, CFDs are leveraged which means you only have to put down a small fraction of the total value of a trade to get the same level of exposure.
Leverage comes with increased benefits but significant risks: your investment capital can go further, but you can also lose more than your initial deposit.
Go long or short
Unlike conventional shares trading, CFDs allow you to take a position on the value of an asset whether you think it will go up or down. So if you thought Facebook’s share value was overpriced, you could take a position on it falling. This would not be possible through traditional shares dealing.
The more the market moves in the direction you’ve predicted, the greater your profit. The more the market moves against the direction you’ve predicted, the greater your loss could be.
With CFDs, it’s important to remember that you’re trading on the price of the market, rather than physically owning the share. This means you don’t own any assets.
