Shares vs. CFDs

CFDs are leveraged instruments, but you don’t have to use the leverage

If you had, say, €13,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You might pay 3% commission to open the position, 1% in stamp duty and the full €13,000 will be tied up in your chosen shares with any profit or loss based on that exposure.

The same €13,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if €13,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit €13,000 into a CFD trading account and take the equivalent CFD position which will tie up just €1300 (note that overnight financing costs will still apply). The remaining €11,700 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!

What’s your view?

Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios click here.

Now, let’s see what opportunities are offered by our 3 Irish stocks: Paddy Power Betfair, CRH and Ryanair