What Is Spread Betting and How It Is Different from CFDs
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What Is Spread Betting and How It Is Different from CFDs?

The 21st century is a century of open financial markets that are accessible to everyone. Among such a great variety of products, it is often very hard to determine not only which one to choose, but also what are the differences among different types of products available on the market.

It is no secret that investment in financial markets can be very lucrative, and the new forms of online trading that are accessible online can help users make money, while investing symbolic amount. The entire philosophy behind online trading seems quite easy to understand – you open an account, make a deposit and place a trade that will sooner or later be profitable. If you want profit faster, you can learn more about trading, or simply use special services.

As always, bigger investments can potentially lead to bigger profit, but sometimes it is good to know that you can start small. Such investments are supported by online brokers: forex brokers, CFDs brokers etc., and are often referred to as ‘leveraged’ trading. Before taking part in any form of reading it is recommended to, first and foremost, learn differences between different types of trading to avoid confusion and disappointment in the future. The initial effort is something that always gives traders additional element of security.

Participants in financial markets very frequently have an issue figuring out the difference between spreads betting and CFDs trading, as they seem to have the same principles.

However, these two types of financial trading are very different, and this article will provide our readers with more insight into the main differences between spread betting and CFDs trading that is provided by popular online brokers like Plus500, AvaTrade, BDSwiss, 24option etc.

What is Spread Betting?

Spread betting, which is believed to be created in the USA in 1940’s. It is a way to participate in financial markets, without actually owning a certain asset (stock, for example). You can predict whether the price of the asset will go up or down, and can also use leverage offered by the broker.

It is called spread betting because it is based on spreads – the difference between buying and selling price. Spread bets usually have fixed expiry dates and their main benefit is that users never have to own expensive assets but can easily invest smaller amounts and predict price movements. Spread betting is considered to be a good choice for enthusiastic traders from the United Kingdom that prefer tax free trading.

What is a CFD?

A CFD (Contract for Difference) is a financial derivative in financial trading that is very easy to confuse with a spread betting because it allows traders to use spread as a base for their actions. However, CFDs don’t have fixed expiry times, and the trader can sell them at any point. In case you as a trader think that the prices are just about to go down, you can sell your CFD. If you think the prices are on the rise, you can buy more.

As it can be concluded from this article, CFDs give you greater control and more exciting opportunities and reduce risk, as you can quit the trading process anytime. At the same time, spread betting is exactly that – a bet where once you make a bet, you cannot sell your bet in order to reduce loss. You have to wait until the end of the bet to see whether you have won or lost. Also, spread betting is not something that is regulated and allowed all over the world, while CFDs trading is present on global markets and accessible to users worldwide.

One of great similarities is margin that increases hand in hand with volatility. On the other hand CFDs trading usually involves paying fees on transactions which is something traders with smaller funds don’t prefer as it can drastically limit their investment opportunities.

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