|
|
CFD Trading vs Spread Trading |
|
CFD Trading and Spread Trading - The Similarities
CFDs and Spread Trading are comparable to a limited extent. Understanding the basic similarities should help you understand the deeper, more substantial differences.
Neither CFD trading or Spread Trading result in the actual buying or selling of underlying financial instruments. For example, CFD trading or Spread Trading on a company’s shares does not translate into the acquisition or disposal (buying or selling) of the actual shares. You are only speculating on the future value of the shares. This means that there is no UK stamp duty to pay from CFD trading or Spread Trading, as there is no real acquisition process.*
CFD trading and Spread Trading are regulated in the UK by the Financial Services Authority (FSA). Regulation covers both financial trading and Spread Trading as well as the CFD brokers and spreads companies that offer trading accounts.
Both CFD trading and spreads allow traders to go long (buy) or short (sell). Going short can be useful if you’re looking to make a profit in a falling market. Therefore profits (or losses) can be made regardless of the direction of the markets.
Both products are also leveraged, in other words an investor only needs to make a small deposit in order to maintain a larger financial exposure. Put another way, leverage means that a large return (or loss) can be obtained from a relatively small outlay, albeit with risks attached.
CFD Trading and Spread Trading - The Differences
There are some major differences between CFDs and Spread Trading. If you are interested in pursuing CFD trading or Spread Trading, but have not yet decided which one best suits your budget, available time and skills, then you should take some time to consider these differences.
CFDs are derivatives that can generate profits/losses which depend on the difference in price between the point in time when the contract is bought and sold. The price difference is determined by the price of the underlying financial instrument at the time of buying and selling.
In contrast, Spread Trading operates through a trade per point movement in the underlying financial market. The trade per point can be determined without reference to the prices of the underlying market. CFDs are price-driven by actual underlying values. Having said that, most spread trading companies tend to base their prices on the underling market.
With Spread Trading the most popular markets tend to be stock market indices whilst with CFDs the most popular markets tend to be individual equities.
CFD trading is subject to capital gains tax in the UK, whereas Spread Trading is tax free*. The benefit here with CFD trading is that if you have a wider portfolio with both normal share trading and CFD trading then you can reduce your capital gains tax liabilities if you made a loss on either your share trading and CFD trading.
CFD Trading and Spread Trading - The Risks
Spread Trading and Contracts for Difference involve high levels of risk to your investment, these products are margined meaning that it is possible to lose more than the investment which you originally committed.
If you are investing via Financial Spread Trading and Contracts for Difference, you should make sure you only invest using money that you can afford to lose. Always ensure that you understand the risks involved. Spread Trading and Contracts for Difference might not be suitable for all classes of investor; obtain independent trading advice when appropriate.
Where to Trade CFDs
You can trade CFDs online with:
Contracts for Difference (CFDs), margined forex and financial spread trading are leveraged products and may not be suitable for everyone. Losses can exceed your initial deposit. Please ensure that you fully understand the risks involved and seek independent financial advice where necessary.
CFD Trading vs Spread Trading, last edited by F. Lawson, 22-Dec-11.
For related articles please see:
CFDs Blog - last update: 22-December-2011
The CFDs Online Financial Trading Blog - a wide range of news and opinions on the CFD markets from some of the leading CFD market analysts, traders and investors. Plus where to - read more - CFDs Blog.
CFDs Brokers - last update: 22-December-2011
CFDs Brokers - in the UK there are many companies offering CFD trading and they tend to charge different commissions and fees. Some brokers offer commission free trading, provide different trading tools, indicators and - read more - CFDs Brokers.
CFDs Prices - last update: 22-December-2011
CFDs Prices: A guide to current CFD prices for the major CFD markets with stock market, forex and commodities CFDs prices. Plus a review of CFDs tools, data and - read more - CFDs Prices.
CFDs Online - last update: 22-December-2011
CFDs Online - How to Trade CFDs Online, Why trade CFDs Online, Where to trade CFDs Online and - read more - CFDs Online.
Hedging with CFDs - last update: 22-December-2011
CFD trading is the ideal hedging tool to help investors protect their investment portfolios. The principle behind using CFD trading to hedge is one of - read more - Hedging with CFDs.
CFD Trading vs Spread Trading - last update: 22-December-2011
CFD Trading vs Spread Trading - A guide to the similarities and differences between CFDs and Spread Trading. If you are interested in pursuing CFD trading or Spread Trading, but have not yet decided which one - read more - CFD Trading vs Spread Trading.
CFDs Guide - last update: 22-December-2011
CFDs Guide - a CFD trading guide looking at how CFDs work, how to trade CFDs, where to trade CFDs, fully worked examples for buying and selling as well as a guide to - read more - CFDs Guide.
CFDs Margin, Fees and Dividends - last update: 22-December-2011
CFDs Margin, Fees and Dividends: an in-depth look at the costs associated with trading CFDs along with margin requirements and stop loss levels. Certain CFD brokers do not charge fees they only - read more - CFDs Margin, Fees and Dividends.
Why Trade CFDs? - last update: 22-December-2011
Why Trade CFDs - CFD trading lets you trade against market movements without actually buying or selling the physical shares or assets, this means that they are quick and accessible, removing the need to trade through a stock broker. Also CFDs let you - read more - Why Trade CFDs?.
Interactive Brokers - last update: 08-September-2011
Interactive Brokers - CFD trading with Interactive Brokers offers low cost trading, DMA pricing transparency, up to 10-to-1 leverage and sophisticated trading tools along with - read more - Interactive Brokers.
Contracts for Difference - last update: 15-September-2011
Contracts for Difference - a quick guide to Contracts for Difference (CFDs) looking at leverage, risk management, Contracts for Difference brokers and - read more - Contracts for Difference.
CFDs Explained - last update: 14-September-2011
CFDs Explained: a guide to CFDs (Contracts for Difference). CFDs Explained looks at leverage, trading risks, buying and sell as well as CFD brokers and - read more - CFDs Explained.
CFD Companies - last update: 14-December-2011
CFD Companies: The CFD companies guide includes a selection of CFD company reviews, important factors for choosing a CFD company and the differences between CFD companies that - read more - CFD Companies.
CFD Trading Strategies - last update: 09-December-2011
CFD Trading Strategies: Since the price of a CFD is based on the market price, your CFD trading strategies should be much the same as when you trade physical the underlying market. Of course CFD trading, like spread trading, is leveraged so you need to - read more - CFD Trading Strategies.
Share Trading Strategies - last update: 08-September-2011
Share Trading Strategies - Approaching your share trading according to a strategy has a range of advantages, perhaps the most obvious one is that when you make a profit, it is easier to see what you did right, and if you make a loss, it is easier to - read more - Share Trading Strategies.
A Quick Guide To Stock Market Trading - last update: 08-September-2011
A Quick Guide To Stock Market Trading - Stock markets, also known as equity markets, are financial centres for trading company shares. Some of the most well known stock markets are the London Stock Exchange, the - read more - A Quick Guide To Stock Market Trading.
|
|
|
Warning: Contracts for Difference (CFDs), margined forex and financial spread trading are leveraged products and may not be suitable for everyone. Losses can exceed your initial deposit. Please ensure that you fully understand the risks involved and seek independent financial advice where necessary.
The contents of this website are for information purposes only and not intended as a recommendation to trade nor does the content constitute investment advice. All reasonable efforts have been made to present accurate information. Neither CFDs-Online.com nor any contributing company or individual accepts any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.
* Tax law is subject to change. It can also differ if you pay tax in a jurisdiction other than the UK.
|
|
