CFD trading vs investing

Discover the main differences between CFDs and investing, as well as the unique advantages and disadvantages of each.

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What’s the difference between CFDs and investing?

The main difference between CFDs and investing is that CFDs are leveraged, while investing is non-leveraged.

With CFDs, you’ll be speculating on price movements – without taking ownership – and putting a margin amount down as leverage to open your position. This increases both profits and losses
When investing in shares, you’re taking direct ownership of the asset, for example company shares. You’ll need the full value of the position upfront

We offer CFD trading on shares, indices, commodities, forex, options, futures and more. We do not offer investing.

CFD trading explained

When you trade CFDs, you’re entering into a contract for difference (CFD), which is an agreement to exchange the difference between the opening and closing price of your position.

CFDs are advantageous if you’re a trader with a short-term outlook. This is because CFD trades enable you to speculate on the price of an asset by going long (buying) or going short (selling).

One of the main benefits of CFD trading is the ability to use leverage, giving you full market exposure while only having to commit a deposit to open your position(known as a margin). So, if you wanted to open a R100 CFD trade on HSBC shares, you’d put down a margin (often 20%) to trade the movement of HSBC’s share price – an initial sum of R20.

But, trading with leverage carries risk. While it can amplify your profits, it can also magnify your losses. That’s because any profit or loss is calculated using the full size of the position, rather than your margin amount. So, with our HSBC example, your profit or loss would be calculated on the full R100, not your R20 margin.

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Investing explained

Please note that this explanation of investing is for informational purposes only, as you can’t invest on our platform.

When you invest, you’re taking direct ownership of shares in a company or ETF. Because of this, investing is popular among those who have a positive long-term outlook on that share or ETF. Any person who buys shares outright will also receive possible dividend payments and gain voting rights.

Leverage isn’t available when you’re investing directly, so you’ll have to commit the full value of the position upfront. But, this also means that your maximum risk is capped at the total cost of your investment. For example, if you bought R1000 worth of shares, the maximum you could lose is R1000 – assuming that the share price falls all the way to zero.

Remember that, when you invest, you can only profit when share prices or the value of an ETF rises above the price that you opened your investment. This is different to CFD trading, which enables you to profit from shares or ETFs that are rising or falling in value.

CFD trading vs investing: a comparison

	CFD trading	Investing
Which markets are available?	17,000+ markets including shares and ETFs, indices, forex pairs, commodities and more	Not available with us
What are is the deposit required to open a position?	Initial outlay for leveraged trades is 20%-25% of the total position size or, in the case of forex CFDs, from 3.33.¹ However, with share CFDs, it’s important to remember that you would pay a commission amount after opening the position.	Investors pay the full value of the position upfront. However, not available with us
Can you go short?	Yes, you can go long and speculate prices rising, as well as go short to speculate on prices falling.	Not as standard. To short stocks with traditional short-selling, investors need to borrow shares, likely from a broker, sell those shares and then buy them back later
What are the trading or dealing hours?	24-hour CFD trading on forex and major stock indices.² We also offer weekend trading on selected markets. However, all spot positions left open after 10pm (UK time) are subject to additional overnight funding charges.	Investors can buy shares when the underlying exchange or market is open. However, investing isn’t available with us
Do you get shareholder privileges and dividends?	No shareholder privileges, but positions are adjusted to offset changes from dividends.	Yes, but investing isn’t available with us

FAQs

Can I open a position on a company’s shares by using CFDs or investing?

With us, you can take a position on shares with CFDs (contracts for difference). CFD trading lets you speculate on share prices without having to own them. You can profit from prices that are rising by going long, or from prices that are falling by going short. You can’t invest in company shares with us.

What is the difference between share CFDs and investing?

One difference is that trading share CFDs won’t give you ownership of the shares in question, while share dealing will. But share CFDs do enable you to speculate on share prices rising by going long, as well as falling by going short. This isn’t available when investing in shares, but you can profit from upwards movements in a share’s price.

For this reason, CFDs are also more complex financial products, which can be higher risk than investing. This is because, with CFDs, your profits and losses can far outweigh your initial outlay. Remember, we don’t offer investing on our platform.

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¹View our margin rates.
²This excludes the 10 hours from 10pm Friday until 8am Saturday (UK time). Only selected indices and the GBP/USD forex pair are available for weekend trading.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Clients can lose more than they deposit. All trading involves risk.

IG is a trading name of IG Markets Limited and IG Markets South Africa Limited. IG Markets South Africa Limited offers domestic accounts and IG Markets Limited offers international accounts.

IG Markets South Africa Limited is authorised and regulated by the Financial Sector Conduct Authority (in South Africa) as an over-the-counter derivative provider and an authorised financial services provider (FSP No 41393). IG Markets Limited is authorised and regulated by the Financial Conduct Authority (in the UK).

IG provides execution only services and enters into principal-to-principal transactions with its clients on IG’s prices. Such trades are not on exchange. Whilst IG Markets South Africa Limited is a regulated FSP and acts as an intermediary as understood in the FAIS Act in relation to the international accounts offered by IG Markets Limited, CFDs issued by IG are not regulated by the FAIS Act as they are undertaken on a principal-to-principal basis. CFDs issued by IG Markets South Africa Limited are regulated by the Financial Markets Act, and IG Markets South Africa Limited is a licenced over-the-counter derivative provider.

South African residents are required to obtain the necessary tax clearance certificates in order to utilise their foreign investment allowance should the South African resident wish to open an international account with IG Markets Limited.

The information on this site is not directed at residents of the United States or Belgium or any particular country outside South Africa and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

Voted SA’s top CFD provider in Business Day Investors Monthly Annual Stockbroker Awards in 2012, best platform for Active Day Traders in 2013 and 2014, SA's best Online Broker in 2015 and 2017 and SA's best CFD provider in 2020 as well as SA's Top CFD Broker in 2021.

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