Physical Stocks vs Stock CFDs – What’s the Practical Difference?
The financial market offers many ways to invest in company shares – from traditional purchase physical actions, to more complex derivatives such as CFDs (Contract for Difference). Both approaches differ in terms of structure, risk, costs, and investment objectives. In this article, we will make a comprehensive comparison of both instruments to help you choose the solution that best fits your strategy and risk profile.
What are physical shares?
Physical actions these are real shares in the company. By purchasing a share, the investor becomes its co-owner – they have the right to a dividend, a vote at the general meeting and a share in any increase in the company's value. We can say that this is a classic type of transaction, present on the market for hundreds of years.
Example:
If you buy 10 shares of a company Apple at $180, you will pay $1800 and become a co-owner of the company. If the company pays a dividend of $1 per share, you will receive $10. Of course, if the stock price increases from $180 to $200, you will also make a profit on the price change itself, and in this case it will be 10 x $20 = $200.
What are Stock CFDs?
CFD (Contract for Difference) is a derivative instrument that allows speculation on the rise or fall of stock prices without physically owning them. The investor enters into a contract with a broker, the settlement of which is based on the difference between the opening and closing price of the position.
Example:
You buy a CFD on a share Tesla at $200. If the price rises to $220, you make $20 on each unit of the contract, without physically owning the shares.
What about dividends? In the case of CFD instruments, the dividend payment is also included in the balance of our position. Popular platforms, such as MetaTrader 4/5, often add it as "swap", even though it is not a swap (an accounting procedure resulting from platform limitations). However, it should be remembered that in the case of a trade on a decrease in price (short position), the dividend payment will be debited to our position, and in the case of a trade on an increase in price (long position), it will be our additional profit.
Key Differences Between Physical Stocks and CFDs
Although buying shares and CFDs on shares may involve the same company, there are a number of differences between these types of instruments. The most important of these are:
- financial leverage available as standard (CFD),
- the cost of holding the position for the next day in the form of swap points (CFD),
- ability to trade on declines (CFD).
A detailed description of the differences is presented in the table below.
| Characteristic | Physical actions | CFD per share |
|---|---|---|
| Property | Yes (share in the company) | No (broker contract) |
| Voting rights | Yes | NO |
| dividends | Yes (full value) | Often yes, but there may be other rules (e.g. cash correction) |
| Financial leverage | Usually missing | Yes (e.g. 1:5, 1:10) |
| Possibility of playing for declines (short selling) | Limited | Yes, as standard |
| Storage costs | NO | Yes (swaps, overnight fees) |
| Investment time | Long term | Short term/speculative |
| Taxation (Poland) | 19% Beams tax | 19% but reported differently |
| Availability on Polish brokerage accounts | Yes | Yes (with CFD brokers) |
| Minimal weight loss | Often high (whole shares) | Fractional investment possible |
Practical applications
Scenario A: Long-Term Investor
Investor A wants to invest their savings in stable dividend companies (e.g. Coca-Cola, PZU). They plan to hold the shares for a few years. In this case, physical shares are a better choice because they entitle to dividends and do not generate fees for holding the position.
Scenario B: Short-Term Speculator
Investor B wants to make money on short-term price movements of Tesla and Nvidia shares. He enters positions for several days, often betting on declines. CFD per share enable it to use leverage and short selling, so its risk is greater and the time horizon is shorter.
Costs and commissions
| Cost type | Physical actions | CFD |
|---|---|---|
| Commission for purchase/sale | Usually % of the transaction value | Often low spread or commission per lot |
| Overnight Holding Fee | NO | Yes (depending on broker) |
| Leverage cost | NO | Yes (Item Financing) |
Advantages and disadvantages of stocks and stock CFDs
Physical actions – benefits:
- Real ownership of the company
- Dividends and voting rights
- No overnight fees
- Lower risk of quick losses
Physical actions – defects:
- High barrier to capital entry
- No leverage
- More difficult access to foreign markets (in Polish brokerage houses)
CFDs on shares – benefits:
- Possibility of playing for declines
- Financial leverage (higher profit potential)
- Easier access to global markets
- Flexibility (possibility of scalping, day trading)
CFDs on shares – defects:
- No real ownership
- Overnight costs
- Risk of higher losses (leverage)
- No dividends in the full sense
Physical Stocks vs Stock CFDs – What to Choose?
The answer is: it depends. Both instruments offer a number of benefits and have some drawbacks. We ourselves must define our investment goals, time perspective and approach to risk.
| Investor Type | Recommended instrument |
|---|---|
| Long-term investor | Physical actions |
| A person saving for retirement | Physical shares (e.g. via IKE/IKZE) |
| Short-term speculator | CFD |
| Trader with small capital | CFD |
| A person who plays for relegation | CFD |
CHECK: Stock CFDs vs Forex Brokers – A Comparison of Offers
Summary
Physical actions are suitable for long-term investors who are looking for stable sources of passive income and the opportunity to grow capital over time. CFD per share is a tool for more active traders who accept greater risk in exchange for potentially faster profits.
The choice depends on:
- your investment horizon,
- acceptable level of risk,
- available capital,
- investment style (passive vs active).