What is trading?
CFDs vs spot trading: what's the difference?
Learning objectives
By the end of this lesson, you'll be able to:
Explain what you own when you buy spot and what that ownership entitles you to
Compare spot and CFDs on ownership, direction, holding cost and counterparty
Decide which of the two suits a given holding period and objective
Spot: you buy the thing
Spot trading means buying an asset at the current price and taking ownership of it. You buy an ounce of gold and the ounce is yours. You buy 100 shares and you're on the register. You buy a bitcoin and you can move it to a wallet you control.
Two consequences follow, and both are the mirror image of a CFD.
You pay the full price. An ounce of gold at $2,000 costs $2,000. There's no version where $100 gets you an ounce.
The asset is yours, independently of whoever sold it to you. It doesn't expire, nobody can close it on your behalf, and it doesn't depend on your broker still being in business.
Four differences that matter
Ownership
Shares held outright pay dividends directly and give you a vote. A share CFD gives neither. What it gives instead is a dividend adjustment: long positions typically credited around the ex-dividend date, short positions debited. Economically similar. Legally a different thing, and no vote attached.
With crypto the gap is wider. Owning bitcoin means self-custody. You can move it, hold it in a wallet only you control, and spend it. A bitcoin CFD offers none of that. If self-custody is the reason you're in crypto, a CFD does a different job from the one you wanted.
Direction
Selling short in spot markets is awkward. To sell an asset you don't own, you have to borrow it first, and that facility often isn't available to retail participants at all.
With a CFD, short is symmetrical with long: same interface, same mechanics, nothing borrowed. This is the main reason CFDs exist as a retail product.
Holding cost, which is the decisive one
The two charge you in opposite rhythms.
Spot charges at the transaction. A commission to buy, another to sell, perhaps custody or storage. Once you own it, holding is close to free. A share bought five years ago costs nothing to keep today.
A CFD charges continuously. As lesson 5 set out, financing accrues every night the position stays open. Hold one for six months and that's roughly 180 charges against a single position, which can meaningfully erode a modest gain or exceed it outright.
This isn't a detail, it's the structural difference. Spot is priced for holding. A CFD is priced for trading. Using one as the other means paying a daily fee for a job the instrument wasn't built to do.
Counterparty
Buy shares through an exchange and your holding sits with a custodian, existing independently of your broker's business fortunes.
Open a CFD and the profit is owed to you by the broker itself. If the firm fails you're a creditor, and what you recover depends on the jurisdiction and how client money was held. Ask before you deposit. A broker that gets vague about it has answered you.
Example: Anna thinks gold rises from $2,000 to $2,100. Illustrative numbers.
Spot. She buys an ounce for $2,000 and sells at $2,100, making $100. A 5% return on $2,000, committed for the whole hold.
CFD. She takes one ounce of exposure at 5% margin, posting $100. She makes the same $100, which on $100 posted is a 100% return on capital committed. She also pays the spread and financing for every night held.
Now run it backwards. Gold falls to $1,900 instead.
Spot. She's down $100 on paper and still owns an ounce. Nobody can force a sale. If she still believes the trade, she can wait a year.
CFD. She's down $100, the whole margin. She faces a margin call and, without adding funds, the position closes automatically. Whether she'd have been right eventually stops mattering, because she's no longer in the trade.
Same market view. Same $100. The instrument decided the consequence of being wrong.
One word of caution: "spot forex"
You'll see retail forex described as spot trading. Be careful with the word. Nobody is delivering you a suitcase of euros. Retail forex is generally a rolling contract, settled in cash, carrying daily financing, which makes it mechanically much closer to a CFD than to buying physical currency. If your platform charges a swap on an open forex position overnight, that tells you which one you're holding.
When should you choose CFD vs spot
- Holding for years, wanting dividends, votes or self-custody → spot. A CFD cannot do this, and using it for that is expensive.
- Days to weeks, either direction, several asset classes from one account, without funding the full value → CFD, provided you've understood lesson 5.
And the thing neither instrument does: none of them turns a bad idea into a good one. They only change how quickly you find out.
Key takeaways
Spot means owning the asset outright at its full price. Ownership is independent of your broker and carries dividends, votes or self-custody
Going short is difficult in spot markets and symmetrical with going long in a CFD, which is the main reason CFDs exist for retail traders
Spot is priced for holding and a CFD is priced for trading: one charges at the transaction, the other charges every night held
The same view expressed both ways produces the same profit but a very different consequence when you're wrong. Spot lets you wait; a leveraged CFD may not