Both stock trading and stock CFD trading are ways for investors to trade the movements of the stock market. However, they differ in fundamental ways. Traders who invest in stocks directly own the underlying stock, which is a portion of the company they invest in.
In contrast, CFD traders buy a contract between themselves and a broker which speculates on a stock’s entry and exit value. Stock CFD traders aim to profit from the movement of an asset without owning it – stock traders aim to profit from the value of the share they own over time.
Diversification - since stocks move independently of many other investments, they are a valuable source of diversification in a trader’s portfolio. This means that during losses on other instruments, stock trading may be a valuable alternative.
No time limits - unlike stock CFDs, stocks can be held by a trader for any amount of time. This means investors can hold stocks as part of a long-term trading strategy, and maximise on long-term trends.
Introduce risk - stock trading can also introduce risk into a trader’s portfolio, and could act as a source of potential short-term, quick profits. Investors should always keep in mind that short-term losses are equally possible.