The difference between contract for difference trading and spread trading?
2023-06-05
Summary:
Many traders are not clear about the difference between a contract for price difference and a spread trading. Spread refers to the difference in price between buying and selling during trading, which is called spread. However, a contract for price difference is currently the most widely used trading tool among domestic residents, using margin trading.
Contract for Difference (CFD) and SpreadBetting is two common trading methods for financial derivatives. Due to the fact that both contract for difference and spread trading are based on price differences, many traders cannot distinguish between contract for difference and spread trading.
They have the following differences:
1. Different operating methods: There are differences in the operating methods between contract for difference trading and point spread trading. CFD trading requires choosing to buy or sell a certain asset on the trading platform to obtain the benefits brought about by changes in asset prices; Spread trading, on the other hand, requires choosing the direction of the bet (bullish or bearish) and the amount of the bet to earn the price difference between the rise and fall.
2. The profit and loss calculation method is different: The profit and loss calculation of CFD trading is based on the actual changes in asset prices. For example, if you buy a stock on CFD, when the stock price rises, you will gain profits. The profit and loss calculation of spread trading is based on the difference between your predicted and actual results. For example, if you predict a stock price to rise but actually fall, you will bear the loss.
3. Transaction costs are different: CFD transactions typically require payment of transaction costs such as commissions, financing fees, overnight fees, etc., while spread transactions do not have these additional fees. On the contrary, the cost of spread trading is already included in the bet spread, so in spread trading, the bet spread may be wider than the buying and selling price of CFD trading.
4. Regulatory differences: CFD trading is a financial derivative that is strictly regulated by regulatory agencies and requires compliance with relevant regulations and rules; Spread trading is usually classified as a gambling activity and is not regulated by financial regulatory agencies.
Simply put:
In trading price difference contracts, the currency units used are based on market and exchange settings, while spread trading allows you to choose to trade in your preferred currency unit.
When trading price difference contracts, the number of points is determined by the broker; When conducting spread trading, you can choose the number of hands for each point.
【 EBC Platform Risk Reminder and Disclaimer 】: There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice.
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