Spread Betting vs CFD Trading

Spread Betting vs CFD Trading difference explained for dummies by “ForexSQ.com” professional financial experts, Choose if Spread Betting or CFD Trading works for you to make money online, Read below the complete Spread Betting vs CFD Trading difference.

Spread Betting vs CFD Trading

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Financial spread betting is a way to speculate on financial markets in the same way as trading a number of derivatives. In particular, the financial derivative Contract for difference (CFD) mirrors the spread bet in many ways. In fact, a number of financial derivative trading companies offer both financial spread bets and CFDs in parallel using the same trading platform.

Unlike fixed-odds betting, the amount won or lost can be unlimited as there is no single stake to limit any loss. However, it is usually possible to negotiate limits with the bookmaker:

  • A stop loss or stop automatically closes the bet if the spread moves against the gambler by a specified amount.
  • A stop win, limit or take profit closes the bet when the spread moves in a gambler’s favor by a specified amount.

Spread betting has moved outside the ambit of sport and financial markets (that is, those dealing solely with share, bonds and derivatives), to cover a wide range of markets, such as house prices. By paying attention to the external factors, such as weather and time of day, those who are betting using a point spread can be better prepared when it comes to obtaining a favorable outcome. Additionally, by avoiding the favourite-longshot bias, where the expected returns on bets placed at shorter odds exceed that of bets placed at the longer odds, and not betting with one’s favorite team, but rather with the team that has been shown to be better when playing in a specific weather condition and time of day, the possibility of arriving at a positive outcome is increased.

Spread Betting or CFD Trading Difference table

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Spread BetsCFDs
Range of MarketsOver 12,000 comprising indices, shares, FX and commoditiesOver 12,000 including indices, shares, FX and commodities
Widened SpreadYesNon-equity markets only
CommissionFreeEquity markets only
Minimum Trade Size25p per point1 CFD
Trade Size£ per pointCFDs
Risk Managing OrdersFull tools accessible comprising Guaranteed Stop LossesFull tools accessible comprising Guaranteed Stop Losses
Platforms AvailableBrowser, mobile and tabletBrowser, mobile and tablet
Demo AccountYesYes

Examples of spread betting CFD trading difference

The 2 main differences in the mechanics between CFDs and spread bets relate to trade sizes and leverage. Below you can find out more info about both of these 2 important differences.

Examples of Trade sizes and notional value

The procedure behind your trade size, or ‘quantity’, and how this associates to your trade notional value varies across CFDs and spread betting. As the table above signifies, with spread bets your trade size is connected to a stake size, whereas CFD trade sizes by the amount of CFDs.

CFD trade sizes

Alternatively, if you required to buy Company ABC shares throughout a CFD trade, which is quiet trading at 550p, you could go and purchase 1000 CFDs. This meaning that your profits or losses will rise for each penny Company ABC shares rally or decrease. Your whole P&L is calculated as the difference among the opening values of the contract to the closing value of the contract.

The CFD trades notional value is £5,500 (1000 CFDs x 550p).

Spread betting stakes

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Let’s say you required to go long, or ‘buy’, Company ABC shares, which are presently trading at a value of 550p. You select to place a purchase spread bet of £10 per point. This meaning that for every single penny Company ABC shares rally overhead 550p, you net a £10 gain.

The spread bet notional value is £5,500 (£10 x 550p).

Leverage examples

Your initial margin or leverage calculations also varies across our main three products; Forex, spread betting and CFDs.

Spread betting

The total of margin you are primarily charged to place a spread bet will vary depending on whether you are spread betting on a non-equity market or an equity market. For equity spread bets, your initial margin is a stable percentage, i.e. 10 percent of the notional value of your trade.

For instance, if you were to place a buy spread bet of £5 for each point on Company ABC’s shares, which have an initial margin level of 10 percent, and whose price is at present 550p, your initial margin necessity would be £275 (£5 x 550p x 10%).

CFD trades

For CFD trades the amount of margin charged initially is a fixed % of the trade’s notional value.

The examples above will be different from a Spread betting company to other companies.

Now you know all about Spread Betting vs CFD Trading difference and you can choose one of Spread Betting or CFD Trading to make money online, So if this article helps you to know the Spread Betting vs CFD Trading difference then tip ForexSQ financial experts please by share it on social networks please.

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