With CFDs, you trade with leverage. This means you can gain greater exposure to the underlying asset with less capital. Your total exposure compared to your margin is referred to as the leverage ratio. However, whereas your initial investment is lower, your total profits and losses are calculated at full position value. Therefore, leverage also implies greater risks and losses.

CFD traders do not own the underlying asset over which the CFD is based, as opposed to buying shares. When holding shares, you generally have additional rights, such as voting rights and dividends.

CFDs provide you with the opportunity to profit in both rising and falling markets – you can open a Buy position if you think the price will go up, and a Sell position if you expect the price to decrease.

When you trade CFDs, you can easily access shares from several markets all over the world, as well as other instruments from the same account. This can make it easier to diversify your portfolio.

When CFD positions are left open overnight, an overnight fee is charged. This makes CFD trading less suitable for long term positions.

Opening a CFD trading account is usually faster than opening a traditional brokerage account.

CFD trading is generally used for shorter-term trading during events such as earnings announcements. Share trading is most often used for building portfolios.

Since CFDs reflect the underlying market, shares in the stock market and CFDs are traded much in the same way. The price a CFD provider would be willing to buy or sell a CFD at is derived from the price the stock is traded on the relevant exchange and in terms of notional value, one share is equivalent to one share CFD.