CFD Trading Strategies CFD Trading Strategies (1)

Comparing CFD Trading vs. Stock Trading


Entering the world of trading can feel like navigating a labyrinth, especially when deciding between CFD (Contract for Difference) trading and traditional stock trading. Each approach offers its unique set of features, benefits, and considerations. This guide aims to simplify these trading methods, focusing on key aspects like leverage, market access, costs, and potential earnings. Whether you're aiming for short-term gains or long-term investments, understanding the differences between CFD trading and stock trading is crucial. With FlowBank, you'll discover insights and tools designed to help beginners make informed trading decisions. 
Explore more about the basics of trading and find the right strategy for you with FlowBank's educational resources.

Understanding the Basics

Diving into the financial market might seem daunting, especially when choosing between CFD trading and stock trading. Here’s a simplified breakdown to help you grasp the basics and make informed decisions, with examples and opportunities to learn more through FlowBank's resources. 

Understanding the Basics :

  • Shares : When a company wants to raise funds, it divides its capital into units called shares, which represent ownership. Buying and selling these shares occur on stock exchanges or through brokers.
  • CFDs (Contracts for Difference) : CFDs allow traders to speculate on price movements of underlying assets like shares, without actually owning them. You profit or loss based on the price change from when you open to when you close your position.

Key differences explained :

  • Ownership : Buying stocks makes you a part-owner of the company. With CFDs, there’s no ownership of the underlying asset.
  • Type of Instrument : Stocks are direct investments in assets, while CFDs are derivatives, based on the asset's price.
  • Dividends : Stock investors can earn dividends, a share of the company’s profits. In CFD trading, there’s no dividend since you don't own the asset.
  • Going Short : CFDs allow you to profit from both rising and falling prices by going long or short. Stock trading traditionally focuses on buying low and selling high (going long).
  • Leverage : CFDs offer leverage, meaning you can control a large position with a small deposit, amplifying potential gains and losses.
  • Out-of-Hours Trading : Stocks are bound to exchange hours, but CFDs might be traded even when markets are closed, depending on the broker.
  • Approach : Stocks are often seen as long-term investments, while CFDs are favored for short-term strategies due to associated costs like overnight fees.
  • Asset Classes : CFDs open doors to a broader range of markets including forex, commodities, and indices, unlike stock trading which is limited to company shares.

Example to illustrate :

Imagine you’re interested in Adidas AG’s market movements. Through stock trading, you could buy Adidas AG shares, hoping their value increases over time, potentially earning dividends. Conversely, with CFD trading on FlowBank's platform, you could speculate on Adidas AG’s price without owning shares. 

If you predict a price drop, you could "go short" and profit if you're correct. This flexibility and access to leverage make CFDs appealing for different strategies.

Leverage : Amplifying your trading potential with FlowBank

Leverage is a powerful tool in the trading world, enabling traders to magnify their trading position beyond the initial deposit. Let's break down how leverage enhances your trading capabilities, especially when navigating the markets with FlowBank.

Leverage Explained :

  • What is Leverage ? Leverage allows you to control a much larger position in the market with a relatively small amount of capital, known as the margin. This means you can increase your exposure to an asset without needing the full value of the position upfront.

  • How It Works : When you trade with leverage, you only need to deposit a fraction of the total value of your trade. The broker covers the rest. For instance, with a 5:1 leverage, a $200 deposit lets you open a position worth $1,000.

Example with FlowBank :

Suppose you want to trade Tesla stocks and believe their price will rise. With FlowBank, you decide to leverage your trade at 5:1.

  • Initial Investment : You have $1,000 ready to invest.
  • Using Leverage : With a 5:1 leverage, you can control a $5,000 position in Tesla stocks, significantly increasing your potential profit.
  • Outcome : If Tesla’s stock price increases by 10%, your profit is based on the $5,000 position, not just your $1,000 investment, amplifying your returns.

Benefits and Risks :

  • Increased Exposure : Leverage enables significant exposure to the markets with a smaller capital outlay, offering the potential for amplified profits.
  • Flexibility : You can take advantage of both rising and falling markets by going long or short on a wide range of assets.
  • Risk Management : While leverage can magnify profits, it also increases potential losses. Effective risk management strategies, such as stop-loss orders, are crucial.

Leverage in CFDs vs. Stocks : simplified for beginners

Let's break down the concept of leverage in trading, especially when comparing CFDs (Contracts for Difference) to traditional stock trading, and see how it affects your trading outcomes with some easy-to-understand examples.

What is Leverage ?

  • Leverage in CFD Trading : Imagine you're playing a video game where you can amplify your strength with a magic potion. In CFD trading, leverage is like that option. It allows you to control a larger market position with a smaller initial deposit (your "strength" in this analogy). For example, if you use a leverage of 10:1 with $100, you can hold a position worth $1,000.

  • Stock trading without leverage : Now, imagine a game where no potions are available. In traditional stock trading, you pay the full price for each "weapon" or stock you buy. So, if you want to invest in a $1,000 stock position, you need $1,000 upfront.

Impact of Leverage on Trading

Positive Impacts :

  • Amplified profits : Let's say your $1,000 CFD position (which you entered with just $100) grows by 10%. Instead of a $10 gain (10% of $100), you make $100 (10% of $1,000). Your gains are amplified by leverage.

  • Capital efficiency : You've still got money to invest elsewhere or hold as a safety net, making your initial capital work harder for you.

Negative Impacts :

  • Increased Risk : If the market goes the other way, and your $1,000 position drops by 10%, you don't just lose $10; you lose $100. You've lost your initial investment and might owe the broker more.

  • Margin Calls : Think of this as a game where you must maintain a minimum score to keep playing. If your losses dip your account below a certain level, your broker will ask you to top up your account or close your position, ending the game.

  • Short-Term Volatility : Leverage can make small market moves feel like big shakes, making it harder to stick to your game plan.

  • Overtrading Temptation : With the power of leverage, it's tempting to play more aggressively, thinking you can win big quickly. However, this can lead to rushed decisions and bigger losses.

Market access and diversity of trading options

Understanding the vast landscape of trading options and market access can feel like exploring a new galaxy for beginners. Let's demystify this by comparing the range of markets available in CFD (Contracts for Difference) trading versus traditional stock trading, focusing on how FlowBank can guide you through this universe.

Exploring the universe of CFD markets

CFD trading offers a telescope to view a broad spectrum of financial instruments, far beyond what traditional stock trading allows. With CFDs, you're not limited to one planet (market); you have the entire cosmos at your fingertips. Here's a glimpse into the diverse worlds you can explore :

  • Global Stock CFDs : Travel from the tech hubs of the USA to the financial districts of the UK, and even to the bustling markets of Asia and Europe.
  • Stock Index CFDs : Navigate through major indices like the FTSE (UK), Dow Jones (USA), NASDAQ, NIKKEI (Japan), and others.
  • Forex CFDs : Dive into the vast ocean of currency trading, where major, minor, and exotic pairs interact.
  • Commodity CFDs : Venture into the fields of grains, the cotton markets, or the energy sectors like oil and gas.
  • Industry Sector CFDs : Explore specific sectors such as technology, banking, healthcare, and more.
  • Crypto CFDs : Embark on a journey into the digital frontier, trading on the price movements of major cryptocurrencies.
  • Treasury CFDs : Delve into the world of government bonds, including Euro bonds and US bonds.

Stock market specifics : A closer look

While the universe of CFDs expands across many galaxies, traditional stock trading focuses on owning a piece of a specific planet—the company. Here, the investment is more tangible, involving buying shares that represent a fraction of ownership in a company. 
Stocks are traded on established exchanges like the NYSE (New York Stock Exchange), where prices are set through supply and demand.
Unlike CFDs, which are traded over-the-counter (OTC) between a trader and a broker, stocks provide dividends and voting rights, connecting you directly to the fortunes of the companies you invest in.

The essence of CFDs and stock

  • CFDs : You speculate on price movements without actual ownership. It's akin to placing a bet with your broker on the price change of assets, such as stocks or commodities, from the moment you open to when you close your position.
  • Stocks : Purchasing a stock equates to buying a piece of a company. As a shareholder, you might receive dividends and have voting rights, with trading occurring on formal exchanges.

Understanding trading costs 

In the battle between stocks and CFDs, the factor that takes center stage is none other than their fees and commissions. Stock trading typically involves clear and transparent commissions, often charged per trade or per share. Stock trading costs also include the spread paid to the stock exchange and custody fees but never an overnight financing charge.

In contrast, when trading CFDs, the cost comprises the spread, an overnight funding charge, and occasionally a commission. Traders may pay a commission on each trade, which can be 0.1% or 0.2% of the underlying value. The broker charges it for both taking and liquidating the position, often known as 'in and out'. However, some CFD suppliers do not charge commissions. 

Furthermore, you will be charged interest if you keep a CFD position overnight. The interest rate is calculated as a margin over a published rate, such as the London Interbank Offered Rate (LIBOR), and the financing rate is often around 2 to 3%. Interest is calculated daily, including weekends, and is based on the asset's current value. 

FlowBank’s competitive edge in trading costs  

Stocks with FlowBank :

CFDs with FlowBank :

  • Classic Accounts :
    • Stock CFDs: From 2 cents per share or 0.10%.
    • Forex CFDs: 0.88 on EUR/USD.
    • Indices and Metals: Competitive spreads starting from 0.2 on spot gold and 0.8 for US 500.

  • Platinum Accounts (Minimum funding 100,000 CHF) :
    • Enhanced Terms : Enjoy lower spreads and commissions, such as 0.09% for stock CFDs and 0.5 on EUR/USD for Forex CFDs.

Profit and Loss Potential : Risk vs Reward

Deciding between CFDs and stocks involves carefully evaluating their profit and loss potentials, which are inherently tied to risk and reward dynamics. 

CFD trading : High stakes, higher potential

  • Leverage in action : Imagine you're trading CFDs on Company XYZ, which is currently priced at $100 per share. You decide to use a 10:1 leverage, allowing you to control a $10,000 position with just $1,000. If Company XYZ's stock price rises by 10% to $110, your CFD position would yield a $1,000 profit (10% of $10,000), effectively doubling your initial investment. However, a 10% decline could similarly wipe out your initial stake.
  • Risk management : This double-edged sword highlights the need for stringent risk management tactics, such as stop-loss orders, to mitigate potential losses that can surpass the initial capital. 

Stock trading : steadier, structured approach

  • Direct Investment : Let's say you invest $1,000 directly into purchasing shares of Company XYZ at the same $100 share price, buying 10 shares. A 10% increase in the stock price to $110 would see your investment grow to $1,100, delivering a $100 profit. Conversely, a 10% drop means you're only down by $100, aligning your losses directly with your initial investment.
  • Limited Risk : This illustrates how stock investments confine risk to the amount invested, offering a clearer, more predictable risk profile compared to CFDs.

Navigating the risks of CFD trading 

Here’s a breakdown of some of the major risk factors associated with CFD trading and how they can impact your trading strategy.

Leverage Risk : High Reward, Higher Risk

  • Amplified Losses : As we already discussed above, leverage can make your profits soar, but it also means losses can quickly spiral, sometimes exceeding your initial deposit. For example, if you use 10:1 leverage to open a $10,000 position with $1,000 and the market moves against you, even a small percentage drop can result in significant losses.

  • Margin Calls : This is the broker's way of saying your account needs more funds to keep trades open due to market moves against your positions. Failing to meet margin calls can lead to your trades being closed prematurely, locking in your losses.

  • Liquidation Risk : If your account doesn't have enough funds to cover margin requirements after a market downturn, you might have to liquidate positions at a loss. Keeping a close eye on account balances and avoiding over-leveraging can help manage this risk.

Market risk : the volatility challenge

  • Increased Volatility : Leverage can turn market volatility from a challenge into a significant threat. Rapid price changes, especially in volatile markets, can lead to large losses quickly. It's essential to have a clear exit strategy and use risk management tools like stop-loss orders.

  • Costs of Holding Positions : Overnight positions in CFDs come with financing costs, which can eat into profits over time. Being aware of these costs and planning trades accordingly can help in managing the overall cost of trading.

Regulatory Risks : The Changing Landscape

  • Regulatory Changes : The rules governing CFD trading can change, affecting everything from how much leverage you can use to what protections you have. Staying informed about regulatory changes in your jurisdiction is key to navigating these waters safely.

Mitigating Risks : This involves keeping up to date with market and regulatory changes, using risk management tools effectively, and never investing more than you can afford to lose. 

Exploring short selling in CFDs vs. stocks

Short selling is a trading strategy based on speculation that an asset's price will decline. It allows traders to profit from downward price movements, offering a different perspective from the traditional "buy low, sell high" approach. Here's how short selling works in the world of CFDs and stocks and what you should consider before diving in.

Short selling with CFDs : flexibility and efficiency

  • No Physical Ownership : In CFD trading, you're dealing with contracts that mirror the price movements of underlying assets—like stocks—without needing to own or borrow them physically. This simplifies entering and exiting trades based on price predictions.

  • Efficiency : CFDs streamline the short selling process. You can open a short position by selling a CFD if you anticipate a price drop. This avoids the complexities of borrowing stock as required in traditional stock short selling.

How short selling works in traditional stocks

  • Borrowing Shares : Traditional short selling in the stock market involves borrowing shares from a broker-dealer, selling them at the current market price, and then aiming to buy them back later at a lower price to return to the lender—profiting from the difference.

  • Obligations : When you short sell stocks, you're responsible for any commissions, interest charges by the broker, and returning the borrowed shares, regardless of market movements.

Differences in short selling approaches

  • Speculation vs. Long-Term investment : CFDs are typically used for speculative, short-term trades given their flexibility and the leverage they offer. In contrast, traditional stock investing often focuses on long-term growth and asset appreciation.

  • Expertise and Risk Management : Effective short selling via CFDs requires a deep understanding of market dynamics and robust risk management strategies. The leverage used in CFD trading can amplify both profits and losses, making it essential to monitor positions closely and be prepared for sudden market shifts.

  • Monitoring and Costs : Holding a CFD position, even overnight, introduces additional risks and costs, such as financing charges. This necessitates constant vigilance and a proactive approach to managing your investment. 


Choosing between CFD trading and stock investing hinges on understanding your financial goals, risk tolerance, and preferred market engagement level. CFDs offer versatility and the ability to leverage positions for potentially higher gains, but with increased risk. 

Stocks provide a more stable investment option with benefits like dividends and voting rights. FlowBank supports both trading styles with educational resources, market insights, and advanced tools to empower your decisions. 

Whether you're exploring the fast-paced world of CFDs or seeking long-term growth through stocks, FlowBank caters to your needs with a secure and comprehensive platform. Embark on your trading journey with confidence, backed by the support and expertise of FlowBank.

Why choose FlowBank for your trading Journey ?

Whether you're captivated by the diversity of CFDs or the solid ground of stock trading, FlowBank is your launchpad. With FlowBank, you gain :

  • Access to a Multiverse of Markets : From stocks to forex, commodities to cryptos, and more, all accessible from a single account.
  • Guidance Through the Cosmos : Leverage FlowBank's educational resources, market insights, and technical analysis to navigate the markets with confidence.
  • State-of-the-Art Technology : Trade on cutting-edge platforms like MetaTrader 4 and 5, offering you the tools to chart your course.


Learn more

Frequently asked questions (FAQs)

Principles and Differences

What are the main differences between CFD trading and stock trading ?

This question addresses the fundamental distinctions between CFD trading, which allows speculation without owning the underlying asset, offering leverage and the ability to profit from both rising and falling markets, and stock trading, where the investor owns shares of a company, with dividend rights and voting rights but no leverage.

Can I use leverage in stock trading like in CFD trading ?

This question highlights the specificity of leverage in CFD trading compared to stock trading, where leverage is generally not available.

Long-Term Investments and FlowBank Support

Are CFDs or stocks better for long-term investments ?

Discussion on the suitability of stocks for long-term investments due to dividends and potential growth, versus CFDs, preferred for short-term speculation.

How does FlowBank support CFD and stock trading ?

Presentation of FlowBank's support for CFD and stock trading through access to numerous markets, educational resources, market insights, and advanced trading tools.

What should I consider before trading CFDs or stocks with FlowBank ?

Advice on pre-trading considerations with FlowBank, taking into account financial goals, risk tolerance, and market engagement level, highlighting the importance of understanding the risks associated with leverage in CFD trading and the more stable nature of stock investments.

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