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
Spread betting is good for satisfying one’s early curiosity in exploring the financial markets. Just like kindergarten toys were useful in exploring the world in their toddler years. The problem is that when it comes to serious financial trading, spread betting strategies have a 50% to 80% inherent limitation in profitability! That’s why CFDs win hands down over spread betting, even if one has to pay 15% or 30% tax on the profits. With spread betting the trading game is easy and straightforward, but traders don’t have to ever worry about taxation because there won’t be any serious profits made.

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!

How to Build a Trading Plan through Online CFD Trading

Online CFD Trading offers the potential for many different strategies. Anything from directional, to partially directional and even insured, hedged trading.

Online CFD Trading is Versatile and Dependable

Online CFD trading is very versatile because of its unique benefits. As it allows traders to profit from even tiny moves in the market, in almost all volatility conditions. Brokers facilitate high quality trading through their CFD trading platforms. And the kinds of traders that use CFDs range from careful, patient as well as impatient beginners to more advanced traders. Including even very sophisticated hedgers. The potential of CFDs together with the potential of a good but not necessarily very good strategy, leads to success. Traders only need to be right on direction about 50% of the time, or even less. And they can still trade for a living. Except that trades need to be larger, better focused and calculated. So that winning trades yield a 10% or 20% gain. And losing trades are identified early, and are either closed or hedged against. There is no need for ultra low risk-reward ratios, and such nonsense that many trading experts will have you believe. What is really needed in wise CFD trading is a realistic approach, going for the low hanging fruit. Which is that 10% or 20% profit per trade. And even these trades may require market exposure of more than a single day. Therefore the myth of overnight market risk should also be avoided.

How to Build a Solid, Safe Trading Strategy

New traders, as well as former losing traders need to focus whilst taking trading lightly. And they should refrain from having the urge to win there and then. An early good strategy can be based on trading from Tuesday through to Friday. By not trading on Mondays, it helps traders stand on the sidelines while the accumulated market volatility plays out on Monday. Following the two days of weekend. Where there may be a divergence between market price and the price that market participants want to see. Traders should pay attention to active market trading hours. It makes no difference what market they choose to trade. They should aim to hold trades overnight, and for at least some decent profit. Confusion and volatility are to be expected, so a kind of plan B trading idea must be on standby. So that unidentified losing trades can be temporarily hedged, until excessive uncertainty goes away. This requires maintaining sufficient funds in the CFD trading account. And also avoiding the desire for putting too much money in a single trade. Typically, the market tends to go where you might expect it to go. But only after moving against you for few days and by a good price margin. And this is where another classic tip is called into question. That of never adding to a losing trade. As with all things, the financial markets are not black and white, so black and white trading tips are not useful. In many cases you actually have to add to a losing trade. Moreover, online CFD analysis on the market in question, can help hedge the losing trade very well, and lock the open loss.

Online CFD Trading
Beware of gaps in the markets. More often than not, market price will attempt to revist a gap. And the gap itself will be tested, it will either be filled or not. Sometimes the move can be significant, resulting in false signals on indicators and moving averages, even though the daily trend has not changed. Losing trades caused by weak, suspected gap-chasing action should be hedged against, or at least be reinstated after intitial closure, and even increased in size, at the new and better market price, because the old trend will soon resume. If the gap-chasing action is in the direction of the daily trend, profitable trades should closed in time, before the market reverses.

How to Identify a Losing Trade and Deal with it Early

Online CFD trading can be enhanced much further if one uses notional stops in the time domain. Probability dictates that if it takes too long for a trade to become profitable, then likely, it never will. And should be closed even if the trade is at break-even or at partial profit when the notional time stop has elapsed. The trick is defining the exact time period past which a trade should be seen as a loser. And this can be inferred from studying past daily charts and volatility. In the case of week to week trading. A trade may be a deceptive loser for many hours to few days, and then turn around. But most markets actually do have time limits of around 3 to 5 trading days. So a losing trade which is one day old should be temporarily hedged against or checked again more thoroughly. Whereas a losing trade older than the perceived time limit, say 5 days, should be either closed or maybe hedged for much longer. The exact action required depends on what the daily chart suggests about market direction. And in most cases carefully selected notional stops in the time domain do help in closing losing trades very early. Then there are trades which harder to identify, but a closed losing trade can always be opened again, at a much better market price. Online CFD trading can be dramatically more profitable through these methods for dealing with risk.

How to Make Money in Online CFD Trading

Online CFD trading is not inherently less risky than other instruments. But it offers much better efficiency. If used with boldness and skill, it makes money!

Online CFD Trading Can Make Millions over Few Years!

Online CFD trading can indeed enable wise traders to make millions. Gradually over few years. This is because the efficiency is so good, that profitability is maximized. And not only on profitable trades. But CFDs make it possible to hedge losing trades, and minimize the losses. In ways that other instruments never really can. In the hands of a beginner trader, you will likely see no success with CFD trading. And you will definitely not see any profitability with any other instrument, such as futures, options or spread betting. This is because beginners make all kinds of mistakes. And even the best beginner traders tend to make money trading from Monday through to Thursday, only to lose it all on Friday. Markets are harsh, unforgiving, and offer no easy way to making millions, period! But wise traders have been through long and painful learning curves. They are able to predict around 30% of market direction. And so they are able to make money consistently. Their profitability is much higher when trading through CFDs. At least 50% higher, in the majority of cases. And in some cases as much as 80% higher! This is because most markets moves are small in magnitude and futures, options and spread betting all fail to fully capture the move. CFDs capture every penny from start to finish, because they have the most linear pricing. Online CFD brokers make this possible through the infrastructure and the way they operate.

Online CFD Trading
The biggest single secret to sucess and to making millions is staying motivated. Trading tips and methods that are lame, poorly defined, and not easily actionable are as good as useless! You cannot possibly make millions in CFD trading, while trading out of a sense of duty and boredom. Even if there is such a way, it will be an unpleasant one. Motivated trading and strategy development, require taking an active interest in the financial markets. Commodity markets and level 2 stock information, are two interesting fiels to explore. Because every commodity is so unique, and because there is a lot to explore. The depth of this market data is not fully understood by any single trader! Making millions on the other hand, is not a ridiculous goal to pursue. It is very dififcult to become a billionaire, perhaps nearly impossible. But to make 1 to 5 million dollars over few years is realistically possible, even by trading CFDs at no more than $30 per market point, which ensures always getting the CFD benefits.

Predicting the Markets for Online CFD Trading

Profitable online CFD trading requires having a relaxed mindset. And also being a specialist. Commodities, as well as commodity related stocks and currencies are the best markets for beginners. Commodities are easier to predict because there is only as much supply as the producers can put out. You cannot print more of any given commodity to meet rising demand. You cannot replace one commodity with another. Whereas with many currencies and stocks this can happen. Commodity prices are determined by supply and demand. And if supply is known, which in most cases it is. Only demand is left to assess. In the case of crude oil and gold, rising long term demand helps increase supply. Because rising prices make it economically viable to extract crude oil and gold, from hard to reach reserves. This fundamental force of demand, is always present. And the week to week trend in the market will sooner or later align with the direction of demand. Beyond all this, a new trader has to become a commodity specialist, and dig deeper into the inner workings of a commodity market. And this is the easiest possible way to making serious money. Every online CFD course deals with some market, which is more or less impacted by some commodity.

Go for Trades Lasting Few Days or More But Pay Attention to Market Makers’ Actions

Traders seeking to make money in online commodity trading through CFDs, should focus on day to day trading. And not exclusively on day trading. But there is nothing stopping the trader from combining commodity stocks, and level 2 stock trading. By choosing commodity related stocks, and then seeking clues for breakouts. In the level 2 quotes, many false price movements and fake trends can be avoided. Usually, the commodity in question will move first, and the impacted stock will move somewhat later. If the stock however is very strongly correlated to the commodity price. Then the two markets will be moving at the same time. The commodity market always carries more weight. And will provide clues as to where the related stock is likely to go next. Level 2 information can help reveal the actions of the market makers, and their true intentions. CFD traders trade these stock price movements very efficiently, and when the underlying trend becomes clear. Every counter trend move on the stock, is a golden opportunity! This is how it is possible to make consistent profits, week after week. The task of working with level 2 data is a little bit difficult, but is also much more interesting than the typical, weak and often ambiguous classic price charts.

How the Elections Could Affect the Markets and Online Forex Trading

The November US presidential election is likely to impact online forex trading through the impact on the US dollar. Traders need to ignore any market weakness.

Online Forex Trading Around Election Time

There is a possibility for markets to react with increased volatility on the days leading up to the actual election time. The November 8 election will determine the next US president, and volatility will go away the next day, no matter who wins. In the case of extended weakness in the US dollar, traders need to be careful. And to treat it with suspicion. Because any such weakness is very likely to lead to a surprise rally soon after the election. In any case however, volatility risk is a possibility, as all US crosses will be impacted. No matter how the US dollar reacts to pre-election uncertainty, it will later resume its major trend. Technically, the US dollar is already in a down trend of some sort. But the validity of the entire sell signal is already in doubt, because of the timing. Some confusion is likely to come about due to the election. And this means potential false technical signals in many US crosses. Other than that, the election will not have a major impact on online forex trading, in any way.

Trading the US Election

Forex traders should look for possible false breakouts and signals. And consider the US dollar to be in a likely bear-trap. Where many bearish traders will get trapped into a US dollar which will at some point skyrocket for no apparent reason. Even when day trading Forex live, traders should always keep the US dollar’s peculiar strength in mind. It is even likely, in the case of Trump becoming the next president. That the US dollar will surprise even more. Through some deceptive decline and some nonsensical rally. So it makes sense to be alert, and suspicious of US dollar weakness. And generally not to take short trades on the US dollar if it does continue to go down before and around the election time. The reason is purely geopolitical. With Trump as president, the US will be seen as stronger diplomatically, and the US dollar as more attractive. If you go on analyzing these events and learn Forex trading through the mindset of carry-trade forex investors, and foreign investors. You will see that many false technical and fundamental signals on currencies are caused by geopolitics. This is why the current weakness in the US dollar appears to be so deceptive.

online forex trading
The US dollar index is showing some weakness lately, which seems to be related to the upcoming presidential election… It’s very likely to turn out to be a false signal, and have the market actually rally sharply at some point, out of the blue. So it is risky to be short this market over the coming days and weeks, unless trading using tight stops and reversal contingent orders.

Online Forex Trading Past the Election

Online forex trading is expected to benefit in the US, if Trump wins the election. And this expectation has to do with the natural evolution of the financial markets. And with the fact that republican governments are more business friendly. And are likely to help the financial industry in the US evolve better. US based forex traders may be allowed more privileges in the future, if Trump is elected. Such as higher leverage accounts. And even possibly access to CFD trading accounts. These are some very real possibilities that could change the forex financial industry in the US for the better. Because too many regulatory restrictions are not good for anyone.

How to Choose Your CFD Broker for Online CFD Trading

Generally, all online CFD trading is superior to non-CFD trading. The reason isn’t so obvious, but CFD brokers inherently best suit the needs of retail traders.

Online CFD Trading Means More Security

Unless you trade several $1000s per pip /market point etc, there is no reason to trade though direct market access. Retail traders tend to trade at less than $100 per pip /point, and CFDs are made for that. CFDs provide one way favorable market liquidity. Extra liquidity at critical market times, and all the liquidity that the small retail trader will ever need. This means security in trading, enhanced trading conditions, and best filling price. There are many good CFD brokers to choose from, but even average rated CFD brokers are still superior to non CFD ones. Moreover, the professional traders who trade through these CFD brokers are very demanding, and want the best of the best. And while welcome bonuses and incentives are welcome. It is actual trading in demanding conditions, where traders judge and rate brokers. Any CFD trading report written by serious traders is bound to be impartial, realistic, and provide specific details. These traders are very street-wise and rate all brokers very fairly. They have also been through the trading practices of older generation non CFD brokers, where issues such as frequent slippage and requotes were common. So nothing can escape their scrutiny for too long. The fact that these traders chose CFDs as their favorite trading instruments speaks volume about CFD trading in the real world. Where trade size matters, and where live trading has to be as dependable as demo trading is. But there are natural limitations, CFDs will deliver all their beenfits for trading up to $100 per point / pip. Which is an unreachable limit for all retail traders. One is bound to have made 10s of millions of dollars before reaching this limit.

Online CFD Trading is the Natural Evolution of Retail Trading

Online CFD trading is facilitated through various good CFD brokers. And it was only a matter of time for that to happen. Now all traders are demanding, and the excellent performance of CFD brokers is forcing all other types of retail brokers to also improve. The problem is a non CFD broker is limited in what it can do. It can never have the level of liquidity, linear pricing and enhanced trading operation that CFD brokers have.

online CFD trading
CFD brokers are very competitive and fast evolving, thereby becoming even better every 5-7 years. Nonetheless, they all offer superior trading to retail size traders. Since they facilitate highly liquid and linear trading, not found among other types of brokers. Not even among DMA brokers. The rest is up to the trader to decide, as different CFD brokers offer different trading platforms and tools.

Choose a CFD Broker Based on Real Trader Ratings

You can safely choose your CFD broker based on ratings and feedback by real, demanding traders. The truth is out there. And this broker will also offer you a basic CFD guide for understanding the basics of CFD contracts, and help you brainstorm trading ideas. Just remember that the strength of CFDs is not in their leverage. Leverage is found in futures, options, spread betting, or any DMA broker offering margin accounts. Leverage is not big deal. The strength of CFDs is in that they can track market price very closely, enabling you to capture entire market moves, dollar for dollar. Futures, options and spread betting fail spectacularly to do that, because they have no linear pricing, And often, half the market move is missed. The result is getting a very bad filling price every time. But especially in tight range day trading, literally half the move is often missed. CFDs don’t have this problem. Then compared to DMA brokers, CFD brokers offer better liquidity still, and get around exchange-imposed restrictions. For example, when short selling restrictions are imposed, DMA brokers don’t allow you to short stocks, and yet at the same exact time, CFD brokers allow you to trade as normal and go short these stocks. When it comes to retail-size financial trading, there is no match for CFDs! Online CFD trading can get you above and beyond classic trading strategies.