CFD vs Spread Betting Differences and Similarities

CFDs or contract for differences are a well-known type of financial derivative in which two parties speculate on an asset’s future price and trade a contract based on that speculation. CFDs do not involve the buying or selling of any underlying asset; instead, CFD traders buy and sell contracts only. The contract is an agreement between a buyer and a seller to exchange the difference of an asset’s value between a given time period.

CFDs trading in rising or falling markets?

A plus point of trading CFDs is that they can be traded in rising and falling markets because a CFD trader can open a position when the market seems to be falling and buy a position when the market is set to rise. Plus, CFDs are traded with leverage, so CFD traders can invest less capital & obtain greater exposure.

Spread betting is a type of derivative in which a trader places a speculative bet on an asset’s price movement and makes a profit if the speculation is correct. There is no buying or selling of underlying assets involved in spread betting; instead, it’s more like placing price bets whether a market is rising or falling.

Spread betting and leverage

Spread betting involves leverage, so you can place a bet worth much more than the capital you invest. While this offers great market exposure for a smaller investment, it also increases the risk in your investment because you can end up losing more than you invest.

The major similarities between CFDs and spread bets are that:

• Both of them involve leverage
• Both involve speculating on an assets price
• Neither of them involves buying or selling an underlying asset.

While CFD trading and spread betting may seem like the same thing, there are a few differences to consider:

• CFDs do not have a fixed expiration date because you can renew them if both parties agree to do so. At the same time, spread bets have a specific expiry date, after which you cannot extend or renew the bet.
• While CFDs can be traded directly in the market, this is not the case with spread betting. Spread bets can only be placed through a broker over the counter.
• Spread betting does not involve commission or trading fees; meanwhile, CFD trading is treated more like any other instrument where traders pay a transaction fee or commission fee.
• The profit & loss calculation is different for both trades. CFD traders either owe money or are owed money at the end of a trade. In a spread, betting profit is calculated with a negotiated dollar rate that is decided while the bet is being placed.

It all comes down to what you’re looking for as an investor. If you’re still confused, you can try our CAPEX demo trading platform feature, which allows traders to have a life-like trading experience on a simulated trading platform.

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The great thing about CFD trading online is that you can do it anywhere there is a secure internet connection. Inevitably, this means that mobile trading has proven particularly popular as traders can conveniently open and close positions from their mobile or tablet as and when it suits them.

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No instrument is better than the other because each trading instrument comes with its own pros and cons. Although, it’s safe to say that one instrument might suit your trading needs better than others. You just need to ask yourself which instrument suits your trading needs better.

If you’re looking for an instrument that allows you diversification, can be traded with limited capital, and offers flexibility – CFDs should be your go-to option. After all, not only can you trade CFDs in a wide range of markets, but you can also trade with high leverage and renew your CFD contract in case it’s going well, and you want to continue earning through it.

Here at CAPEX, we offer traders over 2100 tradable instruments that can be invested in through CFD. Plus, we offer the highest leverage ratio to our expert traders and the lowest trading costs (commissions/spreads) for all our investors.

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CFDs are high-risk instruments, and in order to trade them and have a good experience, you need to be aware of some essential tips. Continue reading to learn a few effective trading tips.

Carry out proper research

Research is extremely underrated, especially when it comes to trading. Mainly because the more you know, the better trading decisions you’ll make. It’s extremely important to know the market you’re investing in, especially the factors that affect that market. So focus on research and ongoing learning.

Diversify your trades

The last thing you want to do is put all your eggs in the same basket. Diversify your trades so you can reduce the risk of losing most of your money. If one trade doesn’t go so well, you might be able to recover from that through other trades.

Strategies are your best friend

Trading strategies provide traders with direction. It’s easy to let emotions rule your decisions when you’re trading, but sticking to strategies helps avoid such happenings. Plus, most expert traders have strategies up their sleeves, which is why they’re able to make a successful trade. So, you can learn trading strategies that are proven to be effective and practice them on our demo trading account.

Sign up with an online broker demo account

Demo accounts are highly beneficial because they give insight into where you stand in terms of trading knowledge and skills. Plus, they provide you with an opportunity to polish your trading skills without risking any money. You can even learn how to apply strategies and see if they’re effective.

Here at CAPEX, we offer traders an excellent demo account feature and plenty of learning tools to support them through their trading journey. Traders can learn trading through our online trading school named Capex Academy. We also offer a trading dictionary and expert trading blog.

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