We’re always looking for ways to make smarter investment decisions and do a bit of investigative journalism on the side, which is how we came to learn about and review CFD (contract-for-difference) trading vs. spread betting. We will compare the two platforms in terms of what they offer, the advantages and disadvantages of each, and which one we think you should choose, primarily depending on your experience.
Features And Functionality
When it comes to trading features, CFD platforms are pretty high-end. One of the biggest differences between the two is the order book: the spread betting platform doesn’t have any, so your orders are either filled or canceled out immediately, with no room for a counter-party to step in and save the day if things go bad. The order book gives you a lot more flexibility in terms of what you can do, especially if you’re used to working with high-quality brokers (such as MT4 or MetaTrader 4).
The other big difference has to do with how the platforms adjust their fee schedules to fit the market conditions. We’re sure you’re familiar with how spread betting fees are calculated: basically, the higher the price, the higher the spread. So, if you’re long at 500 SFPs (synthetic forwards purchase) on BTC/USD and the price rises to 600 SFPs, your net position will be +500 SFPs in the total amount of money you’re managing. Now, in CFD trading, the spread tends to change based on the liquidity of the underlying asset. For example, if you’re trading a Forex pair, the spread may go from 1.5% to 3% depending on whether the market is highly or poorlyiquid. So, as a general rule of thumb, the more liquid the market, the lower the spread (this is also true in other financial products, such as equities and commodities).
Security
Both spread betting and CFD trading are considered safe and secure ways to trade, although CFD brokers do offer some of the more traditional spread betting accounts with some extra security measures, such as two-factor authentication and security freezes. Naturally, as brokers move towards more regulated markets and trading environments, the level of security offered by spread betting platforms increases, too.
Research And Analysis
Unlike CFD brokers, which offer in-house or third-party research along with the traditional markets, spread betting platforms offer an all-encompassing news and analysis section, featuring a lot of the top media publications and a variety of expert-provided analysis on a range of topics, such as economic indicators, current events, and individual stock analyses. While this research can be helpful to those who opt for the more traditional approach of buying and holding stocks for the long term, the amount of time it takes to conduct basic research can be tiresome, which is why we prefer to focus on what’s available right now, rather than what happened in the past or what will happen in the future.
Ease Of Learning Curve
One of the biggest differences between spread betting and CFD trading has to do with the learning curve. While CFD brokers are considered more suitable for experienced traders, there’s a wealth of information available to beginners, allowing them to become familiar with the mechanics of trading in a relatively short period of time. With spread betting, you don’t need any previous experience to get started, but it’ll take you a little longer to understand the ins and outs of CFD trading. Still, with proper guidance and dedication, even beginners can have a great deal of success on the platform.
Demo Account
As mentioned above, the order book is one of the most important aspects of a CFD broker. However, along with that comes the risk of getting overwhelmed by information and losing track of what’s important to you, the individual. To ensure you retain a sense of control, CDF brokers offer demo accounts, which can be accessed by any authorized user. In a nutshell, a demo account is like a sample cookie, allowing you to practice, learn, and gradually build up your account to actual size, all before risking any of your own money. Furthermore, demo accounts can be accessed from anywhere, anytime, which means you can practice trading, regardless of whether you’re at your desk or on the go. This is a huge advantage for those who travel a lot for work or school, as you can continue learning on the go, without having to worry about being at a desk.
To practice currency trading, all you need is a decent internet connection and a PC or Mac. Once you’ve opened a demo account, you’ll be able to access all the markets and tools, via a web browser. Whether you’re trading in a local park or dining room, with a laptop in front of you or in your hand, you’re good to go. No need to download any apps or open up any additional software, which can sometimes be a headache, especially if you’re not used to dealing with them.
Which One Is Better For You
Based on the factors discussed above, we would have to say that CFD trading, as a whole, is a better option for intermediate and experienced traders, due to its additional flexibility in terms of the order book and the amount of available research. Still, for new and prospective traders, spread betting, considering the lack of a order book and some of the safety measures CFD brokers provide, is still a preferable choice.
As always, your mileage may vary depending on your specific needs and circumstances. If you have any other questions about the differences between the two, feel free to give us a call at (202) 208-3069 or send us an email at support@finacircle.com and we’ll be glad to help you out.