When you buy shares of Apple Inc. on the Nasdaq through a traditional brokerage, you become a shareholder. You own a piece of the company, receive dividends, and can vote at annual meetings. When you open a CFD on Apple stock with a provider like IG Markets or Plus500, you do not own any shares. You have entered a contract with the broker to exchange the difference in the asset's price from the moment you open the position to the moment you close it. This fundamental distinction, ownership versus a derivative contract, shapes every aspect of how you trade, what you pay, and what risks you carry.

This article examines seven key differences between holding a CFD and owning the underlying asset. We will look at ownership rights, capital requirements, cost structures, dividend treatment, tax implications, market access, and the regulatory protections that apply to each. Understanding these differences is essential for anyone deciding which instrument suits their strategy. For a broader overview of how CFDs work, see our complete guide to contracts for difference.

1. Ownership Rights and Corporate Actions

Owning the underlying asset, whether it is a share, an ETF, a commodity future, or a currency pair, confers a set of legal rights that a CFD holder does not possess. These rights vary by asset class but generally include the following:

  • Voting rights, Shareholders in companies listed on the London Stock Exchange or the New York Stock Exchange can vote on resolutions at annual general meetings. A CFD trader has no voting power because the broker holds the underlying shares (if any) on its own book or hedges with another counterparty.
  • Dividends and distributions, When a company pays a cash dividend, the shareholder receives it directly. A CFD trader receives an equivalent adjustment, either a credit (for long positions) or a debit (for short positions), but this is a contractual payment, not a dividend. It is often taxed differently.
  • Stock splits and rights issues, A shareholder’s holdings are automatically adjusted in a stock split. In a CFD, the broker adjusts the contract size and price to reflect the split so that the net economic effect is the same, but the trader never holds the new shares.
  • Physical delivery, For commodity CFDs (e.g., gold or crude oil), there is no physical delivery. You settle in cash. If you bought a gold ETF like GLD, you could theoretically request delivery of the physical metal, though in practice most retail investors do not.

Because a CFD is a derivative, you have no claim on the underlying asset. If the broker becomes insolvent, you are an unsecured creditor, not a shareholder with priority. This is a critical risk that differs from holding shares directly in a segregated account (where your shares are ring-fenced).

2. Leverage and Capital Efficiency

One of the most striking differences is the amount of capital required to open a position of a given size.

Owning the underlying asset, To buy 1,000 shares of Unilever plc at £40 per share on the London Stock Exchange, you need £40,000 in your account (assuming no margin lending). If you use a margin loan from a broker like Interactive Brokers, you might borrow up to 50% of the value, but you still need to put up at least £20,000 of your own money, and you pay interest on the loan.

CFD trading, The same 1,000-share position in Unilever via a CFD might require only a 10% initial margin. That is £4,000. The broker provides the rest as leverage. If the share price rises 5% to £42, your profit is £2,000, a 50% return on your £4,000 margin. If the price falls 5%, your loss is £2,000, a 50% loss. Leverage magnifies both gains and losses.

CFD providers typically offer leverage ratios from 2:1 up to 30:1 for major forex pairs, though European regulators (ESMA) have capped retail leverage at 30:1 for major forex, 20:1 for indices, 10:1 for commodities, and 5:1 for individual shares. Professional traders can access higher leverage. For more on the mechanics of long and short positions with leverage, see our article on long vs short positions.

The key takeaway: CFDs allow you to control a large exposure with a small deposit, but they also expose you to the risk of losing more than your initial deposit if the market moves against you and your stop-loss fails.

3. Cost Structure: Spreads, Commissions, and Financing

The costs of trading a CFD differ significantly from the costs of buying and holding the underlying asset.

Owning the underlying asset

  • Broker commission, Traditional brokers charge a flat fee or a percentage per trade. For example, Hargreaves Lansdown charges £11.95 per UK share trade. Interactive Brokers charges about 0.05% of trade value with a minimum of £1.00.
  • Stamp duty, In the UK, buying shares incurs 0.5% stamp duty (except for ETFs and AIM stocks). No stamp duty is payable on CFDs.
  • Custody fees, Some brokers charge an annual custody fee for holding shares (e.g., 0.45% per year with Hargreaves Lansdown for funds).
  • No ongoing financing cost, If you buy shares with cash, you pay no interest. If you use margin, you pay margin interest (typically 1.5%, 3% above the base rate).

CFD trading

  • Spread, The primary cost is the bid-ask spread. For popular stocks like Apple or Vodafone, the spread might be 0.1%, 0.3%. For forex majors, it can be as low as 0.6 pips.
  • Commission, Some CFD providers charge commission on share CFDs (e.g., 0.10% per side with CMC Markets) but have zero commission on forex and indices.
  • Overnight financing (swap), If you hold a CFD position open past the daily cut-off time (usually 22:00 London time), you pay or receive an overnight financing charge. For long positions, you pay interest (typically LIBOR/SONIA plus a broker markup of 2-3% per year). For short positions, you receive interest (often at a lower rate). This cost can erode profits on longer-term trades.
  • No stamp duty, CFDs are exempt from UK stamp duty because no physical transfer of shares occurs.

For a day trader who closes all positions before the daily cut-off, the financing cost is irrelevant. For a swing trader holding positions for weeks, the financing cost becomes a significant factor that does not exist when holding the underlying asset outright.

4. Dividend and Corporate Action Adjustments

When you own a share, you receive the dividend directly into your brokerage account. With a CFD, the treatment is a contractual adjustment:

  • Long CFD position, On the ex-dividend date, the CFD provider credits your account with an amount equal to the dividend (minus any withholding tax). This is not a dividend payment; it is a cash adjustment to reflect the fall in the share price caused by the dividend.
  • Short CFD position, You are debited the dividend amount, because the short seller must compensate the lender of the shares for the dividend forgone.

The net economic effect is similar, but the tax treatment differs (see section 5). For other corporate actions such as stock splits, the CFD provider adjusts the contract size and entry price so that the value of your position remains unchanged. You never receive the new shares.

5. Tax Treatment

Tax is one of the most jurisdiction-specific differences. We will focus on the UK and summarise other major regimes.

United Kingdom, Owning shares directly: profits from selling shares are subject to Capital Gains Tax (CGT) if they exceed the annual allowance (£6,000 for 2023/24, falling to £3,000 from 2024/25). Dividends are taxed as income (dividend allowance £1,000). CFD trading: profits are generally treated as income and subject to Income Tax (not CGT) because CFDs are considered financial spread bets or contracts for difference. However, many UK retail traders use CFDs under the