In the meantime, however, numerous innovative trading products have become established, which are far more popular than shares nowadays. CFDs in particular are appealing to more and more investors and in many cases have the edge over stocks. We make the comparison and show you what advantages CFDs have over shares and where the disadvantages of contracts for difference lie.

Shares and CFDs - Where are the differences?

In order to be able to draw a comparison between shares and CFDs in Exness, it is first necessary to clarify the question of what these forms of investment are in the first place.

Shares are securities that are shares in the equity of a corporation. When shares are traded on a stock exchange, the corresponding prices depend on supply and demand. Anyone who buys one or more shares thus receives various rights.

These include, for example, the right to dividend payment, the right to a share of the company's capital stock, and also the right to liquidation proceeds if the company files for bankruptcy. If you buy shares, you do so exclusively in anticipation of rising share prices.

When trading CFDs, you do not own the underlying assets - you are only making a kind of bet on the price performance.

On the other hand, when you buy stock CFDs, or indeed any other CFDs, you do not receive any rights associated with an actual purchase of a security. CFDs can be traded on a variety of underlying assets, such as foreign exchange, commodities, bonds or ETFs.

Advantages of CFDs over stocks

CFDs have a clear advantage over stocks - those who trade contracts for difference usually only have to spend a fraction of the capital that would be required to buy stocks. Thus, trading with CFDs is accessible to a broader mass of investors and even those who do not have a large budget can achieve high profits with CFD trading, because the leverage allows large sums to be moved even with small capital and these can be hedged by proper risk management.

In addition, CFD trading offers the possibility of mobile management. There are numerous apps that allow you to open, monitor or close your positions on the go.

Also, CFDs are simply structured and transparent when it comes to pricing. The price trend of the underlying asset is replicated one-to-one and no other factors are involved.

An advantage of CFDs is the fact that you can bet on both rising and falling prices and thus have the opportunity to profit from any market development.

Other advantages of CFDs are shortselling, risk diversification mentioned above and the mitigated currency risk. When acting beyond the German borders, one is subject to the full currency risk when investing directly. Losses can occur due to the usual currency fluctuations, although the share value remains constant. In the case of a CFD, only a mitigated risk remains, which results from the conversion of the profit or loss from the difference between the entry and exit price into one's own trading account currency. Thus, CFDs are an attractive alternative to stock trading not only for small investors.
For whom are shares better suited than CFDs?

Even though there are many advantages to trading CFDs, trading with contracts for difference is not suitable for every type of trader. CFDs are highly speculative financial products and trading involves high risks of loss. Thus, contracts for difference are not suitable for safety-oriented investors and also not for long-term investors.

Those who want to hold CFD positions for months will quickly realize that the associated financing costs can eat up a large part of the profit. For short and medium term investment horizons, the financing costs are not very significant, but over time, the fees add up and may have a negative impact on the return. So if you attach a lot of importance to security and want to invest for the long term, you are generally better off with equities.