While they are both financial products that allow you to profit from the price of assets, securities accounts and CFDs are not aimed at the same types of investors.
Which financial product should you use to invest ? This is a question that every beginner trader has asked themself at least once. And for good reason: investing in the financial markets can be done through a wide variety of products, whose offer has diversified over the years. Two key products, securities accounts and CFDs, do not require the same trading strategies.
Here is a comprehensive summary of the information you need to choose the best investment between a securities account and CFDs for your specific trading profile.
Securities accounts and Contracts for Difference (CFDs) are both financial products that allow traders to generate capital gains on the price fluctuations of certain financial assets. Both products can be held by the same investor as part of their investment portfolio. The securities account allows the trader to buy securities and securities listed on the stock exchange such as shares, bonds or bonds.
Opened in a bank or with a broker, this type of account allows the trader to invest by taking advantage of rising prices, and to capture dividends. The securities account therefore offers the trader real ownership of the securities purchased. A CFD is a derivative financial product that allows the trader to speculate on the rise or fall of future price fluctuations of an underlying financial instrument (stock, stock index, currency, commodity, etc.). It does not offer the trader real ownership of the underlying assets, and has no intrinsic value, its value follows that of the underlying assets. In addition, CFDs allow for the use of high leverage, which can increase gains and losses tenfold.
Securities accounts can only be traded during the opening hours of the relevant market, so the trading window is limited for the investor. CFDs, on the other hand, allow for continuous trading, 24 hours a day, during the opening hours of the underlying markets around the world.
Good to know : some brokers also offer weekend trading for CFDs.
Securities accounts present a limited and controlled risk for the trader. Indeed, potential losses of a trade cannot exceed the amount initially deposited, as the investor must provide the total amount covering their position in advance. Conversely, since CFDs allow for leverage, the trader does not need to deposit the full amount necessary to cover their position. In addition, capital gains generated by the position can be increased tenfold, as well as the losses.
The costs of investing via securities accounts are relatively low: a simple commission is applied to each transaction made by the trader. CFD trading, on the other hand, is much more expensive: spreads, commissions and financing costs are to be expected.
Thus, both securities accounts and CFDs allow traders to profit from price fluctuations of financial assets. However, both products have their own specificities, which make them more suitable for a certain trading practice. Securities accounts are more suitable for long term investment, while CFDs are more suitable for short (intraday strategies) and medium term traders, who are less risk averse.