CFD vs Share Trading - Differences

Shares denote a small piece of ownership in a company. Major corporations have millions of shares you can buy or sell on regulated markets. The price of shares rises and falls based on supply and demand and other factors, such as the company's financial performance, executive decisions or announcements, and macroeconomic factors.

CFD is short for contract for difference. It is a financial derivative meant to track an underlying market. CFD share trading involves contracts that track individual assets on stock markets.

Unlike shares, CFDs do not represent ownership of a company. Instead, they merely mimic the price movements of the underlying asset. You do not purchase a CFD. Instead, you agree to pay the difference between the price of the stock when you open the position and when you close it. The price difference is calculated in points, each with a specific value.

If you open a position while CFD shares are trading and the underlying stock goes up, the broker will pay you the value of the increase. However, you must pay the broker if the underlying shares go down.