Online CFD Trading and Spread Betting – What are the Differences

Online CFD trading is significantly better than spread betting. Though the main advantages are hidden at first, and are later fully revealed in actual trading.

What Online CFD Trading and Spread Betting Offer

Both online CFD trading and spread betting seem a lot alike, especially in slow moving markets. Spread betting is more convenient for beginner traders. As market prices are quoted in whatever currency the spread betting account is based in. CFD markets are quotes in the currency that the specific market is based in. For example CFDs on crude oil and gold, will be quotes in US dollars. And this may be confusing to beginner traders, not very familiar with the US dollar. CFDs are subject to capital gains tax, because they are classed as real trading instruments. So all gains, and some losses, through CFD trading, are taken into account for calculating tax liability. Spread betting is classed as gambling, and is exempt from capital gains tax. Generally, spread betting appears more convenient and appeals more to beginners. Spread betting however is not suitable for serious, dedicated fast trading such as day trading. Spread betting pricing can deviate significantly from actual market price. Whereas CFDs are extremely linear in their pricing. Which enables traders to trade at any speed. Since they follow actual market price very closely, and reliably. CFDs also offer uniquely large liquidity, even better than that of direct market access. This liquidity is available always, to retail traders for up to $100 per price point.

Online CFD Trading Wins Hands-down over Spread Betting

When it comes to serious trading, and the need for consistent profitability, CFDs win the argument. All beginner traders are slowly finding out that spread betting is like child play. Spread betting looks appealing only to naive beginner traders. As traders learn more and more about the markets, they realize that CFDs are a much better choice. Even when faced with hefty capital gains tax on profits, CFDs are still better! Because the strategies used cannot possibly be nowhere near as good through the use of spread betting. Capital gains tax maybe as much as 30% in some countries. And yet, the unique edge of CFDs allows for profitable trading. Spread betting is quite inefficient, due to its poor, non linear pricing. So much so, that most trading strategies suffer 50% to 80% reduction in their profitability. Hence, it makes sense to trade through fast and reliable CFDs and pay even 30% tax on profits. Rather than have half the profits, and pay no tax at all. Day trading especially, is almost impossible to do through spread betting. And in most cases, spread betting works well when trading with few pennies or few dollars per point. But as soon as the trader goes above $10 per point or trades faster, liquidity and delay problems hinder proper trade execution. CFDs are extremely efficient up to $100 per point, a limit which most retail traders never have to reach.

Amateurs and Serious Traders

Online CFD trading has been chosen as a smart trading tool, by even stock option traders and hedgers. Exactly because part of their complex trades needs to be perfectly linear, and to offer very low dealing costs. CFDs have much lower dealing costs than spread betting, because the spreads are tighter. And dealing costs are lower than those of option too. More importantly though, it is linear pricing that makes CFDs second to none! No other derivative trading instrument is as linear as CFDs. A good CFD trading system will always take advantage of this superior linear pricing. Especially in choppy, small range market conditions, where it is often totally impossible to profit through spread betting or options. The CFD trading risks are no greater than those of direct market access trading. And simply the inability to predict market price movement. Except that CFDs offer better liquidity than even direct market access trading, and no dealing restrictions are ever imposed. Amateur traders however can still lose, no matter how they choose to trade. Amateur traders will typically lose money even through CFDs, and will blow their accounts within 6 months. That’s because trading and risky and difficult. But if they are successful in predicting the markets. Then CFDs will offer at least twice the profitability that spread betting can offer, on the exact same strategy!