While stocks and CFDs are popular financial products for investors around the world, they differ in many ways and are suited to different kinds of investors.
A stock is a security for a share in a company, while a CFD is a derivative product for speculating on the value of an underlying asset. CFDs are often used to invest in stock indexes or directly in shares. Thus, the stock market and the CFD market are closely linked. However, these two types of financial products are not suitable for the same investor profiles or trading strategies.
Here is a complete summary of the information you need to choose between stocks and CFDs in order to find the most suitable financial product for your profile and objectives.
The quantity and diversity of products available to investors on the stock market is colossal. Indeed, listed companies from all over the world offer their shares to traders, who can choose the size of the companies they wish to invest in.
Although there is also a wide range of CFDs available to investors - traders have access to products from all over the world - it is mainly companies with the largest market caps that offer these products. Thus, CFD investing is globally limited to companies listed on the major global indexes.
While it is very easy to buy shares, selling them is much more difficult. Some shares are simply not sellable; when they are, the investor must use the Deferred Settlement Service (DSS), which incurs additional costs.
CFDs allow traders to invest in both the upside and the downside of any underlying asset at no additional cost.
Investing in equities is particularly suitable for the medium to long term. Indeed, the costs of holding shares for periods longer than one month are much lower than in the CFD market.
Conversely, CFD investing is more suited to short time horizons, particularly intraday strategies, due to the relatively high overnight fees involved.
In the equity market, fees and commissions are about 10 times higher than in the CFD market, and include :
The cost of investing in CFDs is mainly related to the payment of spreads, which can be fixed or variable depending on the broker. In addition, beyond one day's holding, overnight fees are also to be taken into account.