Complementary trading involves traders buying and selling two or more securities or assets which are related to each other. For example, a CFD position in gold is a type of complementary position where you are buying both the metal and the commodity connected to it (i.e. oil, natural gas, etc).
Although CFDs are easy enough to understand and implement, they can be risky business. For example, if you choose to go long (i.e. to buy) gold, then you are effectively putting money on the table that you won’t be able to get back. When traders use leverage, this can be a recipe for disaster due to the fact that they might be forced to cover their entire stake at the end of the day. Furthermore, CFDs also involve a high level of uncertainty since the market conditions for both the metals and the commodities can change from day to day and thus force the trader to adjust their positions frequently. Finally, many CFDs are completely free which means that there are no upfront costs associated with them. However, this also means that you might be exposed to higher volatility than you would if you were paying for the instruments.
What is Spread Betting?
With spread betting, you are taking a position on a tradeable market whose price will move according to a specific formula or pattern. So, for example, if you believe that oil prices will rise in the near future, then you can construct a spread bet which will result in profit if the price of oil rises above the predicted amount. In general, spread betting is a safe and simple way for traders to play the market since there are no upfront costs associated with them. Another advantage of spread betting is that they often offer leverage which enables traders to place much larger bets than would be possible if they were buying individual securities or equities. Finally, many popular spread betting platforms like Interactive Brokers’ City Index are completely free which removes any overhead costs associated with them. However, like CFDs, spread betting is also a potentially risky instrument since the markets which are being tracked can change frequently and unexpectedly which might force the trader to liquidate their positions at a loss. Additionally, spreads can become very volatile when markets are moving fast and it is thus important to be mindful of the position sizing guidelines since large bets can easily turn into bad bets if they are not handled properly. Lastly, to be effective, spreads need to be combined with proper risk management strategies like stop loss orders and limit moves so as not to suffer large losses when the markets turn against you. In short, spread betting can be a useful tool for experienced and sophisticated traders who are willing to do a little bit of research before placing their bets. It would be a shame to lose money because you did not know how to use a tool like spread betting effectively. Many traders underestimate the power of this instrument. However, the fact remains that spread betting can be one of the most profitable tools for those who know how to use it properly. Furthermore, just like CFDs, spread betting allows traders to play the market without having large amounts of capital tied up in the instruments they are using.
Advantages Of CFD And Spread Betting
Although there are many disadvantages to CFDs and spread betting, there are also a number of advantages which make such instruments desirable choices for traders. For instance, CFDs and spread betting give experienced and skilled traders the ability to play the market without the need to be physically present at a trading venue. Additionally, both of these instruments allow traders to gain access to a large number of markets which might otherwise be unavailable to them due to geographical or time constraints. Finally, both CFDs and spread betting provide traders with the ability to place much larger wagers than would be possible if they were using other types of instruments. For example, a CFD in gold might involve a maximum 1:1000 leverage which gives a trader the ability to place up to £100,000 worth of bets on a single instrument (i.e. 1 BTC, or $100,000). Of course, this is not to say that CFDs and spread betting are easy instruments to work with. Like all types of trading, it takes experience to avoid making large mistakes which could lead to financial loss. Finally, both CFDs and spread betting provide 24 hour trading which means that experienced traders can continue to monitor the markets and react quickly to developing trends as they occur. When used properly, CFDs and spread betting can be highly effective tools for capturing market trends and turning them into valuable profits.