Difference between CFD and Invest accounts
Many brokers offer different types of accounts to choose from, but what is the difference between CFD and Invest accounts? Which one should you choose?
CFDs accounts are trading account where it is possible to invest in CFDs, and speculate on the price of many different assets.
Invest Accounts offer the possibility to invest in stocks and shares or to create an investing portfolio with different stocks in it.
But let’s see now everything in detail.
- Can buy and Sell
- Can only buy the equity
An invest account is an account where you can invest in stocks. There are many brokers in the market offering the possibility to invest in stocks. Some of the most famous ones are IG, Admiral Markets and Trading 212.
Investing in stocks means that the trader will buy a fraction of a stock, called equity, and will own it until it will be sold.
If the price of that stock will grow from the moment it has been bought, than there will be profit. If the price will decrease, this will lead to a loss.
On an Invest account is usually needed more money than a CFDs account to start trading. Also, there isn’t any limit on the number of stocks you can buy.
What makes an Invest Account unique is the “Investment Portfolio” or “Investment Pie”.
An Investment pie is a mix of different fractions of stocks placed together into a portfolio. Their return will be calculated by the platform depending on the type of stock in it and the quantity.
As for the single stocks, also an investment portfolio can be sold anytime and without any obligation.
A trader can have as many investment portfolios as desired. All of them can be managed from the computer or even with an App, and can be modified anytime.
CFDs accounts are trading accounts offer by brokers where you can trade CFDs. CFDs (Contract for Difference) are a financial instrument used by many people.
This type of contracts are offered by trading platforms to all their users. What is unique about it, is that the entry fee to trade CFDs is very low.
When you open a CFDs trading account on a platform, you will invest on the trend of a certain market. The right term to use in this case is “speculation”.
In fact with CFDs a trader speculate on the trend of a certain market, without owning any fraction of that asset.
This means that if you trade Euro – Dollar for instance, you will not own any dollar or euro, but you will only try to predict the trend of this currency pair. You can either buy or sell it.
If you buy on Euro – Dollar, it means that you predict the Euro will get stronger and the price will go up.
If you sell it, it means that you predict the Dollar will get stronger, and the pair’s price will decrease.
On a CFDs account, the trading platform will be the “bridge” between a trader and the real market.
This type of accounts always come with a leverage. But what is it?
Leverage on CFDs Accounts
A big difference between CFD and Invest accounts is the leverage. This is a financial tool available only on the CFDs account.
The leverage is a multiplier which allows every trader to invest in the market with a small amount of money.
To make an example, if you want to invest on a contract of Oil, which price for barrel is $50, you don’t need to have $50.
If you have a leverage of 1:100, you can open a trade with only $0.50. This number is the result of $50 divided by 100, which is your leverage.
Something very important to mention about the leverage is that, if on one side it can multiply your profits, on the other it can have the same effect on the losses too.
CFDs and Invest Markets Available
Another very important difference between CFD and Invest Accounts are the markets available.
On a CFDs account it is possible to invest in many different markets:
On an Invest Account is possible to Invest only on Stocks. Many companies give also the opportunity to create an “investment portfolio”.
As said above, an Investment Portfolio is a mix of different stocks, put all into the same unique portfolio. There isn’t a limit of stocks, or fractions of stocks, making a portfolio.
Once a portfolio is ready, the risk-return ratio, the timeframe and the future deposits or withdrawals can be periodically scheduled.
Difference between CFD and Invest Trades
A big difference between CFD and Invest accounts is the type of trades that can be done.
On a CFDs account it is possible to buy or sell in a market anytime. For the fact that you don’t own any of the assets you trade, you can open as first trade a sell position on whatever you like.
As mentioned before, the whole point of a CFD account is to speculate on the market trends.
This allows traders to make a profit even in the case the price drops.
In fact, if you have opened a trade on sell and the price goes down, you will make a profit.
On an Invest Account, on the other hand, you can only first buy a stock, and sell it later, only when you want to close the position.
This means that you can make a profit only if the price of that stock goes up. If the price drops after you have bought it, you will lose some money.
After having analysed the main difference between CFD and Invest accounts, we can say that both offers are very valid.
A CFDs account is meant for traders with a limited budget and for who have interest in stocks, but also indexes, commodities, currency pairs and cryptocurrencies.
CFDs are also considered more risky than stocks, because of the leverage. As said before, if the leverage on one side can be good and bring higher profits, on the other can be very risky an increase the losses.
An Invest Account is more suitable for investors with an interest only on stocks and with a good starting budget to open a trading account.
Stocks can bring a profit only if their price has grown since it has been bought. This can be very risky and their investment needs a stronger analysis of the market.
Finally, the investing portfolio is the ultimate financial product where it is possible to plan professionally a mix of stocks, their risk-return ratio and leave it there to work automatically without any need of extra work after it has been set up. This is a perfect solution for people without much time to dedicate to their investments.
Here you can find all the information about a CFD demo account if you want to try this type of trading: https://tradingonlineguide.com/what-is-forex-trading/forex-demo-account/
Author of this article and founder of Tradingonlineguide.com
My aim is to help you increase your trading knowledge with helpful content. I come from an economic background and have a strong passion for forex trading. With more than 6 years in the online trading world, I want to share my financial knowledge so that anyone can develop their investment skills.
In my spare time I enjoy cooking and travelling.
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