Every week we provide insights into popular assets and hot questions, so you can easily learn more about the investment market in bite-sized pieces.
In this edition of Markets in Focus, we take a closer look at the difference between CFDs and traditional investing, exploring how buying a stock differs from trading a CFD on that asset.
What’s the difference between CFDs and investing
CFDs and investing are two separate ways to take a position on a market’s price movements. On the surface, they may seem similar – but they work very differently. Unlike investing, when trading CFDs, you never actually own the underlying asset.
How investing works
When you invest in a market (for example, a stock), you typically buy shares and add them to your portfolio.
Later, when you decide to sell, you realize a profit or loss based on the difference between the purchase and sale price.
How CFDs work
When you trade via CFDs, you don’t buy the asset itself. Instead, you trade a Contract for Difference, a financial product that tracks the live price of the underlying asset, such as a stock.
When you close your CFD position, you exchange the difference in price with your provider. If the price has increased, you profit. If it falls, you incur a loss.
Benefits of CFD trading
1. Going short
Unlike traditional investing, CFDs allow you to profit from falling prices by opening a short position. This means you can sell the market upfront and gain if the asset’s price drops, which is particularly useful in bearish market conditions.
2. Leverage
CFDs also allow trading with leverage, multiplying your exposure (for example, up to 5x). This can increase potential profits but also increases risk if the market moves against you.
Do I need to trade with leverage?
No - on the Change App, you can also trade without leverage using our Stocks product. This allows you to buy whole shares or fractions of your favorite companies, with no leverage involved.
We wish you a successful trading week – with or without leverage!
Until next week!
