Spread Betting Cfd
Spread Betting & CFD
1st January 2007
Both spread betting and CFDs are very similar to futures contracts. The trades are settled in cash like the majority of financial futures, with your profits or losses accounted for on the balance of your account. Like a futures contract trading before expiry, a spread-bet or CFD position does not require you to buy or sell the real underlying asset.
This has several benefits. If you believe that a company's mismanagement will translate into a falling share price you can benefit from the fall in price. To make money on the way down you can take 'short' positions, and more easily and cheaply than in spot markets such as normal shares. Alternatively, a short spread bet or CFD position could be used to hedge against losses in a real share already owned, locking in a profit without incurring a tax liability.
The futures exchanges know that only 20% of traders make money. The same is true for spread betting and CFD traders. There are several reasons for this. If you are trading for profit you need to earn at least the spread or commission you have paid to make the trade. If you are using spread bets or CFDs to hedge an existing position the intention is to lock in any gains just in case the holding goes against you, or equalise a loss made in the underlying.