Stock CFDs vs real shares: ownership, dividends, costs, leverage and tax compared

When you buy a real share, you become a part-owner of the company: you are entitled to dividends, you can usually vote, and the most you can lose is what you paid. When you buy a share CFD, you enter a contract with your broker that pays or charges the change in the share price; you own nothing, you can use leverage and go short, and you pay financing for every night you hold the position. The price exposure can be identical, but the costs, risks and rights are very different.

This guide compares the two side by side: ownership, dividends and corporate actions, the full set of costs with a worked example, leverage and risk, investor protection, tax in general terms, and the situations in which each is typically used. If you are new to CFDs, read what is a CFD first, and for how shares are traded on exchanges, see how stock markets work.

The core difference: ownership versus a contract

Real shares

When you buy shares through a stockbroker or investment platform, your order goes to an exchange or other trading venue and is matched with a seller. After settlement, the shares are held for you, almost always in a nominee account: the broker or its custodian is the registered holder, and you are the beneficial owner. The shares must be kept separate from the broker's own assets.

As a beneficial owner you have an economic claim on the company. You receive dividends, are affected by corporate actions in the same way as every other shareholder and can, depending on your platform, vote at meetings or attend them.

Share CFDs

A share CFD never touches the exchange on your behalf in that way. It is a bilateral, cash-settled contract between you and the broker, whose value tracks the share price. The broker may hedge its exposure by buying or selling the real shares, or by netting client positions against each other, but those are the broker's arrangements, not yours. When you close the CFD, the price difference times your position size is credited to or debited from your account.

That has practical consequences:

• No voting rights and no access to shareholder meetings.
• No transfer. You cannot move a CFD to another broker; you can only close it.
• Counterparty exposure to the broker. Your contract is only as good as the firm you trade with.
• Dividends arrive as cash adjustments, not as dividends paid by the company.

Dividends and corporate actions

Dividends on real shares

If you own a share on its record date (in practice, if you bought it before the ex-dividend date), you receive the dividend when it is paid. For foreign shares, the country of the company may withhold tax at source. Tax treaties can reduce the withholding rate for residents of some countries, often only if the right form has been filed through your broker. Some platforms offer dividend reinvestment.

Dividend adjustments on CFDs

On the ex-dividend date, the share price usually falls by roughly the dividend amount. To keep CFD holders in a similar economic position, the broker makes a dividend adjustment:

• Long positions are credited, sometimes with an amount reduced to reflect withholding tax.
• Short positions are debited, often with the full gross amount.

The adjustment is a cash entry in your trading account, not a dividend, and may be treated differently for tax purposes. Our guide to dividends and corporate actions explains the mechanics.

Other corporate actions

Share splits, consolidations, rights issues, spin-offs and takeovers are applied to real shareholders by the company and the custodian. With CFDs, the broker adjusts your position to reflect the economic effect as closely as it can, or closes it. Rights issues and complex takeovers can be handled in ways that differ from what a shareholder receives, and a delisting may lead to the CFD being closed at the last available price.

Costs compared

Both routes have dealing costs; the big difference is what happens while you hold the position.

Costs of real shares

• Commission or dealing fee: a flat fee per trade or a percentage of the value, depending on the platform.
• Spread: the difference between the best bid and offer on the exchange, paid implicitly.
• Currency conversion: buying a US share from a euro or sterling account means converting the full purchase amount, often with a markup on the exchange rate, and converting again when you sell.
• Transaction taxes: some countries tax share purchases. In the UK, for example, purchases of shares in UK companies generally incur stamp duty or stamp duty reserve tax at 0.5%; CFDs are not subject to it.
• Custody or platform fees: some platforms charge a periodic fee based on account value; others do not.

Once you own the shares, there is no daily charge for holding them.

Costs of share CFDs

• Commission or spread: often a percentage of trade value with a minimum per trade, or a markup on the exchange price.
• Overnight financing: charged every night on the full value of the position, not just the margin. Long positions typically pay a benchmark rate for the share's currency plus the broker's markup; short positions receive the benchmark minus a markup, which can mean a charge rather than a credit. See swap and overnight financing.
• Currency conversion: applied to gains, losses and charges if the share is priced in a different currency from your account, rather than to the whole position value.
• Market data: some brokers charge for live prices on certain exchanges.
• Short-selling borrow costs: on hard-to-borrow shares, short CFDs may carry an additional fee, or may not be available.

Our guide to hidden broker fees covers conversion markups, inactivity fees and similar charges that apply to both kinds of account.

Worked example: what holding costs

The figures below are illustrative assumptions, not any broker's actual prices. Suppose a trader with a euro account wants 10,000 euros of exposure to a US share.

Real shares, assumptions: 0.1% commission each way; 0.5% currency conversion markup each way.

• Commission: about 10 euros in and 10 euros out, 20 euros.
• Conversion: about 50 euros in and 50 euros out, 100 euros.
• Holding cost: nil per day.
• Total round trip: about 120 euros, regardless of how long the shares are held.

Share CFD, assumptions: 0.1% commission each way; financing at 7% a year on the full position; conversion only on the eventual gain or loss, ignored here for simplicity.

• Commission: 20 euros round trip.
• Financing: 10,000 euros times 7% divided by 365 is about 1.92 euros a night.

Comparing the totals:

• After 10 nights, the CFD has cost about 39 euros against 120 euros for the shares.
• After about 52 nights, the two are roughly equal at around 120 euros.
• After one year, the CFD has cost about 720 euros against 120 euros for the shares.

The pattern, not the exact numbers, is what matters: CFDs front-load less cost and charge more the longer you hold, while shares cost more to get in and out of but nothing to keep. With different commission rates, conversion fees or financing rates the break-even point moves, sometimes a long way. Our profit and loss calculator can help you model your own case.

One more nuance: the share buyer ties up 10,000 euros, while the CFD trader puts up 2,000 euros of margin at the maximum 5:1 retail leverage. The remaining 8,000 euros could sit in cash. Financing is, in effect, the price of that borrowed exposure.

Leverage and risk

Real shares

Buying shares outright involves no leverage. If the share falls 30%, you lose 30% of what you put in; if the company fails, you can lose all of it, but no more. Leverage on real shares is possible through a margin loan from a broker, which brings margin calls and its own interest costs, but it is not the default.

Share CFDs

Under ESMA's product intervention measures, applied by national regulators such as CySEC, and equivalent FCA rules in the UK, retail clients can trade individual share CFDs at no more than 5:1 leverage, meaning a minimum margin of 20%. Brokers may require more for volatile or illiquid shares.

Consider a fully leveraged position:

• 10,000 euros of exposure, 2,000 euros of margin.
• A 10% fall costs 1,000 euros, half the margin.
• At that point the margin level is around 50%, which is where EU and UK rules require the broker to start closing positions. Our guide to margin call and stop-out explains the calculation.
• A 20% fall costs 2,000 euros, the whole margin.

Shares can fall 10% or 20% in a single session on bad results, and often open with a gap that skips past stop-loss orders. Negative balance protection means a retail client cannot lose more than the money in the account, but the account itself can be emptied. Our guide to why most retail CFD traders lose looks at how leverage and costs combine, and our position size calculator helps size a trade from the amount you are prepared to lose rather than from the margin available.

Going short

Short-selling real shares requires borrowing them through a margin account, which few retail platforms offer, and comes with borrowing fees and recall risk. With a CFD, a short position is opened as easily as a long one. The risks are the mirror image: a short position loses as the price rises, takeover bids can produce sudden large jumps, and dividend adjustments are charged to shorts.

Investor protection

The legal position differs if your provider fails.

• Real shares held in a nominee account belong to clients and should be returned to them if the broker fails, subject to the firm having kept proper records and segregated assets. If assets are missing, an investor compensation scheme may pay eligible clients up to a limit.
• CFD positions are contracts with the broker. Client money backing them should be held in segregated accounts, but open positions themselves are claims on the firm. A compensation scheme may apply to client money that cannot be returned, up to its limit; it never covers trading losses.

In both cases, checking that your provider is authorised by a credible regulator is the first step; see how to check a broker licence and our regulator registers page.

Tax, in general terms

Tax depends on where you live, your personal circumstances and how the authorities classify your activity, and rules change. This section is general information only.

• Gains on shares are commonly subject to capital gains tax or a similar tax on investment income, sometimes with allowances, exemptions or tax-advantaged accounts that hold shares but not CFDs.
• Dividends are usually taxed as income, and foreign withholding tax may be creditable against your home tax, depending on treaties.
• CFD gains and losses are commonly treated as capital gains or, in some countries, as income from derivatives or from trading, and losses may or may not be offsettable against other gains. Dividend adjustments on CFDs may be treated differently from real dividends.
• Transaction taxes on share purchases, where they exist, often do not apply to CFDs, which is one reason CFD volumes are high in some markets.
• Spread betting, offered in the UK and Ireland, is economically similar to CFD trading but is generally treated differently for tax purposes in the UK.

Because the differences can be material, check the rules that apply to you with your tax authority or a qualified adviser before assuming one route is more efficient.

When each tends to be used

Without suggesting what anyone should do, the products' features tend to suit different purposes.

Real shares are typically used when:

• the intended holding period is months or years, where the absence of financing matters;
• receiving dividends and having shareholder rights is part of the point;
• the person does not want leverage or the possibility of losing the account balance quickly;
• tax-advantaged accounts that only hold cash instruments are available to them.

Share CFDs are typically used when:

• the intended holding period is short, often days or less;
• the trader wants to go short as easily as long;
• the trader wants to hedge an existing share portfolio temporarily without selling it;
• access to many markets from one margin account is important;
• the trader understands and accepts leveraged risk and the high proportion of retail accounts that lose money.

Many people who use CFDs also hold real shares in a separate investment account, treating the two as different activities with different budgets and rules. Whichever you use, our risk warning sets out the risks of leveraged trading.

Common mistakes

• Holding CFDs like an investment. Months of financing on the full position value can exceed the gain on a share that has risen modestly.
• Ignoring dividend debits on shorts. A short CFD held over an ex-dividend date is charged the dividend adjustment.
• Assuming CFD dividends are taxed like real dividends. They may not be; check.
• Forgetting currency conversion on foreign shares. On real shares, conversion markups on the full amount in both directions can cost more than the commission.
• Sizing CFDs from available margin. Size from your stop distance and the amount you are prepared to lose; see position sizing.
• Treating CFD and share accounts as interchangeable for protection. Ownership through a nominee and a contract with a broker are different legal positions.

Frequently asked questions

Do you own the shares when you trade a stock CFD?

No. A stock CFD is a contract with your broker that tracks the share price. You have no ownership, no voting rights and no claim on the company. The broker may or may not hold the underlying shares to hedge its own exposure.

Do you get dividends with stock CFDs?

Not as dividends. Long positions held over the ex-dividend date usually receive a cash adjustment, sometimes reduced for withholding tax, and short positions are usually charged one. The tax treatment of these adjustments can differ from that of real dividends.

Is it cheaper to trade CFDs or real shares?

It depends on how long you hold. CFDs avoid conversion of the full amount and, in some countries, transaction taxes, so they can be cheaper for short periods. Daily financing on the full position makes them progressively more expensive the longer you hold.

What leverage can I use on stock CFDs?

Retail clients in the EU and UK are limited to 5:1 on individual share CFDs, meaning at least 20% margin. Brokers can set higher margins for particular shares, and clients classified as professional may be offered more leverage but lose retail protections.

Can I lose more than I invest?

With real shares bought outright, no: the most you can lose is what you paid. With CFDs, EU and UK retail clients have negative balance protection, so losses are limited to the account balance, but a leveraged position can lose its margin quickly.

Can I transfer a CFD position to another broker?

No. A CFD exists only on the books of the broker you opened it with. To move, you have to close it and open a new position elsewhere, paying the costs of doing so. Real shares can usually be transferred between platforms.