CFDs vs Share Trading

Trading CFDs has a number of benefits over traditional share dealing

CFDs (Contracts for Difference) can help you make gains similar to those you can achieve through share ownership – but they’re not same as owning shares.

Shares-vs-CFD

Here are the key similarities and differences between trading CFDs and owning shares.

Key differencesCFDsShare Dealing
OwnershipYou don’t own the sharesYou do own the shares
Dividends and votingYou get dividends but don’t have any voting rightsYou get dividends and may have voting rights
CostYour initial outlay is only a proportion of the position value (which could be as low as 0.5%) to place a CFD tradeYou need to pay up the full value of the shares
Market riskYou can go ‘long’ or ‘short’, so you can gain if the market rises or fallsYou’ll only make a gain if the share price rises
How to buyOnline, using Spread Co’s trading platformsThrough a broker
CommissionNone, all costs are included in the spreadMay be broker commission to pay
Stamp dutyNo1Yes1
Overnight financingLIBOR +2% only when you go long, none when you go shortNo

A CFD trade vs a share trade in practice

Here’s an example of a share trade and a CFD trade on the same asset.

Opening Trade

Share tradeCFD trade
Share price100p100p
Size of trade/stake10,000 shares10,000 CFDs
Value of trade/stake£10,000£10,000
Stamp duty1£50£0
Cost/margin£10,050£2,000

 

This is just an example. If the share price fell by a similar amount the loss on the CFD trade would be magnified in the same way that the profit has been in this example.

Tax advantages

Under current UK tax laws CFD trading is free of Stamp Duty1. Profits on both CFD and share trading can be subject to Capital Gains Tax1. However, it is worth remembering that trading losses can also be offset against profits. Read about all the other advantages of CFD trading.

Go long or short

Under current UK tax laws CFD trading is free of Stamp Duty1. Profits on both CFD and share trading can be subject to Capital Gains Tax1. However, it is worth remembering that trading losses can also be offset against profits. Read about all the other advantages of CFD trading.

Margin & leverage

As you can see from the table above, with CFDs you are able to trade on margin. This means you are only required to put up a small percentage of the value of your trade (usually from 3.33%) to get the same exposure as a share deal requiring 100% cover for the investment. As a result, CFDs employ leverage. This means that profits and losses are magnified. Find out about our risk management tools.

Dividends

Dividends are treated slightly differently for CFDs than on share deals. For long positions, open CFD trades receive 90% of the net dividend value through a credit to your account. For open short UK equities positions, 100% of the net dividend value is debited from your account. Visit our CFDs explained page for more information.

1Tax treatment depends on your individual circumstances and tax laws can change or may differ in a jurisdiction other than the UK.