Spreadbetting vs CFD's

[Chorlton]

Hello All,

For all those who have used both Spreadbetting and CFD's in their trading, can I ask which would be the preferred choice and why?

Advantages / Disadvantages of each together with Broker recommendations for each choice would be most welcome.

From my point of view, I am only experienced with Spreadbetting so hence the question.

Basically, I have developed a system which I would now like to trade using leverage but not sure which method to use.

All comments / thoughts welcome...

Thanks,

Chorlton

 

[Lightning McQueen]

I really don't know a lot about cfd's, so being curious I searched.

I believe this info to be useful for starters, mentions leverage too

Contracts for Difference Vs Spread Betting

 

[Chorlton]

I really don't know a lot about cfd's, so being curious I searched.

I believe this info to be useful for starters, mentions leverage too

Contracts for Difference Vs Spread Betting

Lightning,

Yet again, Thanks for your help. The article was indeed useful for understanding the basic difference between them.

In addition though, I would still welcome Pro's & Con's of each choice from anyone who has actually used these methods for trading.

Also, if anyone can offer any recommendations of which brokers to use for each choice then that would be really useful.

Cheers....

 

[Bagehot]

It depends - the main difference is if you can find a DMA CFD broker and then you're not taking on the broker's book - you're going straight into the market. I won't list any as I don't have first hand experience, but Google DMA CFD and you'll see the names. For those brokers who don't offer DMA, then there really is very little difference (apart from details on how the dividend is calculated for stocks), other than the tax and when I spoke to someone at CMC about it, they said that they run CFD and s'bets off the same platform with identical prices, etc and that it wasjust that some countries didn't allow spreadbetting so offered CFDs instead. He said that there was no reason at all for someone in the UK to use their CFD product rather than spreadbet as the only difference was tax, which falls in the spreadbetter's favour.

 

[Chorlton]

It depends - the main difference is if you can find a DMA CFD broker and then you're not taking on the broker's book - you're going straight into the market. I won't list any as I don't have first hand experience, but Google DMA CFD and you'll see the names. For those brokers who don't offer DMA, then there really is very little difference (apart from details on how the dividend is calculated for stocks), other than the tax and when I spoke to someone at CMC about it, they said that they run CFD and s'bets off the same platform with identical prices, etc and that it wasjust that some countries didn't allow spreadbetting so offered CFDs instead. He said that there was no reason at all for someone in the UK to use their CFD product rather than spreadbet as the only difference was tax, which falls in the spreadbetter's favour.

Thanks for the info.

Would I be right in assuming that there aren't any DMA Spreadbet brokers? From what I've read so far DMA is by far the better option.

 

[Lightning McQueen]

Thanks for the info.

Would I be right in assuming that there aren't any DMA Spreadbet brokers? From what I've read so far DMA is by far the better option.

There was but they have just bit the dust.

http://www.trade2win.com/boards/spread-betting/29995-futuresbetting-closing-down-any-views.html

 

[new_trader]

Hello All,

For all those who have used both Spreadbetting and CFD's in their trading, can I ask which would be the preferred choice and why?

Advantages / Disadvantages of each together with Broker recommendations for each choice would be most welcome.

From my point of view, I am only experienced with Spreadbetting so hence the question.

Basically, I have developed a system which I would now like to trade using leverage but not sure which method to use.

All comments / thoughts welcome...

Thanks,

Chorlton

Spreadbetting is by far the better choice. You can earn £trillions and never have to pay a penny in tax. Brilliant! Anyone who trades and pays tax on their profits is a fool!

 

[Chorlton]

Spreadbetting is by far the better choice. You can earn £trillions and never have to pay a penny in tax. Brilliant! Anyone who trades and pays tax on their profits is a fool!

Hi New Trader,

Probably a very daft question but how would one calculate position size with Spreadbetting, as you are in essence betting per point? I understand the process when buying the underlying share but not too sure with Spreadbetting.

As an example, If I had an initial capital of £20000 and XYZ comes up as a long trade with an Buy at £1.40, a Stop at £1.20 and a risk per trade of 2% of initial capital, then I can basically afford to risk £500 on that trade. With a difference of £0.20 between Entry and Stop prices (and assuming that each spreadbet point = £0.01 movement) then would I simply divide 500 / 20 which would mean I would be betting £25 per point?

Is this correct?

Thanks in advance,

Chorlton

 

[the blades]

Hi New Trader,

Probably a very daft question but how would one calculate position size with Spreadbetting, as you are in essence betting per point? I understand the process when buying the underlying share but not too sure with Spreadbetting.

As an example, If I had an initial capital of £20000 and XYZ comes up as a long trade with an Buy at £1.40, a Stop at £1.20 and a risk per trade of 2% of initial capital, then I can basically afford to risk £500 on that trade. With a difference of £0.20 between Entry and Stop prices (and assuming that each spreadbet point = £0.01 movement) then would I simply divide 500 / 20 which would mean I would be betting £25 per point?

Is this correct?

Thanks in advance,

Chorlton

Chorlton,

When you buy a share at, for example, £5 per point, you have the same exposure as buying 500 of those shares. £10 per point is 1000, etc etc.

Think of it that way and your calculations are easy.

UTB

PS - I suspect new trader is taking the ****. He's got too much time on his hands on the night shift.

 

[the blades]

Hi New Trader,

Probably a very daft question but how would one calculate position size with Spreadbetting, as you are in essence betting per point? I understand the process when buying the underlying share but not too sure with Spreadbetting.

As an example, If I had an initial capital of £20000 and XYZ comes up as a long trade with an Buy at £1.40, a Stop at £1.20 and a risk per trade of 2% of initial capital, then I can basically afford to risk £500 on that trade. With a difference of £0.20 between Entry and Stop prices (and assuming that each spreadbet point = £0.01 movement) then would I simply divide 500 / 20 which would mean I would be betting £25 per point?

Is this correct?

Thanks in advance,

Chorlton

...

 

[0007]

Hi New Trader,

Probably a very daft question but how would one calculate position size with Spreadbetting, as you are in essence betting per point? I understand the process when buying the underlying share but not too sure with Spreadbetting.

As an example, If I had an initial capital of £20000 and XYZ comes up as a long trade with an Buy at £1.40, a Stop at £1.20 and a risk per trade of 2% of initial capital, then I can basically afford to risk £500 on that trade. With a difference of £0.20 between Entry and Stop prices (and assuming that each spreadbet point = £0.01 movement) then would I simply divide 500 / 20 which would mean I would be betting £25 per point?

Is this correct?

Thanks in advance,

Chorlton

Your method is correct, just a slight arithmetic error on risk calc.
Risk is 2% of £20k = £400
stop size = 20p
400/ 20 = £20 per point

just been reading an excellent book on SB - covers the basics & quite a bit more on trading plans / discipline / psychology etc. author says you should really have a basic understanding of the market before you read it.

"The financial Spread betting Handbook" by Malcolm Pryor £20 - well recommended. Pub. Harriman House and even printed on decent quality paper & not the bog-paper that so many Uk publishers use these days.

 

[new_trader]

Hi New Trader,

Probably a very daft question but how would one calculate position size with Spreadbetting, as you are in essence betting per point? I understand the process when buying the underlying share but not too sure with Spreadbetting.

As an example, If I had an initial capital of £20000 and XYZ comes up as a long trade with an Buy at £1.40, a Stop at £1.20 and a risk per trade of 2% of initial capital, then I can basically afford to risk £500 on that trade. With a difference of £0.20 between Entry and Stop prices (and assuming that each spreadbet point = £0.01 movement) then would I simply divide 500 / 20 which would mean I would be betting £25 per point?

Is this correct?

Thanks in advance,

Chorlton

Chorlton,

I sincerely apologise. I was being facetious with my remark about spreadbetting. However, your calculation appears correct. You have to be careful with your calculations due to the way the spread is added. If the stock you are buying is quoted as Bid 140/Ask 141 then you are Buying @ 141.00 and you should include the spread in your stop distance calculation and cost.

Some companies might quote as Buy and Sell instead. So, for example, if the BUY is quoted as 140.00 and Sell is quoted as 139.00 (1 point spread) and you bought @140.00 with a Stop @ 1398.00 this does not mean you have a 2 point stop. Your stop is triggered when the SELL price touches your stop on a Long position. So, you have risked £20 (assuming £10/point) but you only have a 1 point stop distance.

 

[Chorlton]

Your method is correct, just a slight arithmetic error on risk calc.
Risk is 2% of £20k = £400
stop size = 20p
400/ 20 = £20 per point

just been reading an excellent book on SB - covers the basics & quite a bit more on trading plans / discipline / psychology etc. author says you should really have a basic understanding of the market before you read it.

"The financial Spread betting Handbook" by Malcolm Pryor £20 - well recommended. Pub. Harriman House and even printed on decent quality paper & not the bog-paper that so many Uk publishers use these days.

LOL.... Yes it is £400 and not £500. I was making the calcs in my head as I was writing the post. Something which I definately won't do in real-time

 

[Chorlton]

Chorlton,

I sincerely apologise. I was being facetious with my remark about spreadbetting. However, your calculation appears correct. You have to be careful with your calculations due to the way the spread is added. If the stock you are buying is quoted as Bid 140/Ask 141 then you are Buying @ 141.00 and you should include the spread in your stop distance calculation and cost.

Some companies might quote as Buy and Sell instead. So, for example, if the BUY is quoted as 140.00 and Sell is quoted as 139.00 (1 point spread) and you bought @140.00 with a Stop @ 1398.00 this does not mean you have a 2 point stop. Your stop is triggered when the SELL price touches your stop on a Long position. So, you have risked £20 (assuming £10/point) but you only have a 1 point stop distance.

New Trader,

No need to apologise. With the comment about "Trillions" being made, I either assumed that you had found the "Holy Grail" of systems or you were just having a laugh.