The below table outlines the difference between trading or investing with a CFD(Contract for difference) and a Equity share. Click here for a full explanation on what a CFD is.
Aspect | Equity (Stocks) | Fully Funded CFD (Contract for Difference) | Leveraged CFD (Contract for Difference) |
Ownership | Yes, implies actual ownership in the company | No direct ownership of the underlying asset, but full economic returns (price return and distributions). | No direct ownership of the underlying asset, but allows for amplified price speculation. |
Rights and Dividends | Potential voting rights and dividends as part of ownership. | No voting rights; does include cash adjustments for dividends. | No voting rights; does include cash adjustments for dividends. |
Value and Returns | Value linked to company performance; returns through capital gains and dividends. | Value based on the price movement of the underlying asset; suitable for various market conditions. Returns through price movement and distributions linked to dividends. | High potential returns due to leverage; suitable for both rising (long position) and falling market (short position) conditions. |
Risk | Market risk present; investment can lose value, limited to the amount invested. | Market risk present; investment can lose value, limited to the amount invested. | High market risk; potential for rapid losses, but can be managed with stop-loss orders and other risk management strategies. |
Investment Horizon | Typically preferred for long-term growth and income. | Flexible; can be used for short-term speculation or long-term holdings. | Primarily used for short-term speculation; not typically recommended for long-term investment due to implied funding costs and volatility. |
Leverage | No leverage
| No leverage
| High leverage, significantly increasing potential returns but also potential losses. |
Voting Rights | Usually includes voting rights in corporate decisions. | No voting rights. | No voting rights. |
Margin and Financing Costs | Brokerage (commission), exchange and custody fees | Spread only (max 20 bps); no funding costs | Spread (max 20bps); funding costs |