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| Could CFD trading challenge spread betting in popularity? | | Print | |
| Written by Sam Coventry |
| Monday, 11 April 2011 12:37 |
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A new report shows that CFD trading could challenge spread betting in the leveraged trading stakes. There is no doubt that when it comes to looking for a leveraged play on the markets spread betting is the preferred medium. However, new figures suggest that CFD trading is racing ahead in popularity with the number of private investors trading CFDs rising by 40 per cent. Latest figures show that trading numbers rose from 18,000 to 25,000 in the year to October 2010. This is according to global wealth researcher Investment Trends, which interviewed a sample of over 13,000 traders. Like spread betting, CFDs are way of trading the markets using leverage. Money is won and lost on the movement of share prices where the shares are not actually physically purchased. The CFD / spread betting provider is the market maker. Analysts in the 2010 UK Financial Spread Betting & Contracts for Difference Report, said they expected a further 9,000 CFD traders to enter the market in 2011. A report in the Financial Times today says that the Financial Ombudsman Service reported an increase in the number of complaints about CFD providers. A review in 2010 had previously found that some stockbrokers advising clients on CFDs were inadequately qualified to do so. The report links the rise to the increasing number of foreign exchange trading providers who have added CFDs to their product offerings, and the corresponding advertising push by providers of their existing CFD provision. But for foreign exchange trading spread betting remains the preferred investment method, as investors seek to take advantage of global currency exchange volatility. Just over a third of all spread bets comprised foreign exchange trading in the previous year study, but in 2010 the figure rose to 42 per cent of all spread bets. However the report found that CFD traders had outperformed spread betters over the period, with an average return of 20 per cent, compared to 9 per cent and fewer reporting losses. |
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Spread betting at a glance
- Spread betting is a financial product that allows retail and professional investors access to the widest possible number and types of exchange traded instruments.
- The spread betting company that you trade through is the market maker, the trader does not actually take ownership of any underlying product. Hence, most jurisdictions do not charge stamp duty on any gains.
- The notion that you don't actually own the product ensures spread betting platforms are able to almost instantaneously execute orders on behalf of their client.
- Spread betting is a leverage product, your money is able to realise you impressive gains as your earnings come in multiples of the actual change in the underlying product that you are trading.
- This is of course where spread betting can also go spectacularly wrong. Losses can be huge, therefore we advise those that are spread betting, or are looking to go into spread betting, to enter each trade with a well thought out strategy. This also means setting a pre-determined stop loss so that losses are cut at a manageable level.
- This website is here to offer more insight into this fascinating trading instrument.