Should You Use Spread Betting or Contract for Difference (CFD) Trading?

There are two different and separate ways in which you can start forex trading; spread betting or CFD. They are both designed to achieve the same thing, but they are different in the way that they operate.

When you are using spread betting, you choose to invest (or bet) a certain amount of money in the currency in which your account is established. This means, that if you are looking at USD/JPY, you can buy or sell at £10 per percentage in point (pip) so you would make £10 for each pip when the US dollar increases or falls in value against the Japanese currency. This is a way for a forex trader to make the most of the short-term currency movements and is a popular method of trading.

CFD like a way to start forex trading

With CFD trading, the trader will either buy or sell contracts that represent a specific size of the trade. As an example, you could buy one deal in a currency pair of GBP/USD which might constitute a business of £10,000. As with other trading, any profit will show in the second currency of the pair, and then this can be converted into whichever currency your account has been established in if you need it.

This means, that to get started, you don’t have to invest the full currency value. This method allows you to use a ‘margin deposit’, so it is only a small part of the value of the trade. You are also not actually buying or selling any currency, you are merely speculating on any potential change in the currency value of the two coins in the pair. You will determine any profit or loss when you sell or buy the contract.

As with all types of trading, it is recommended that you do a lot of research, and learn as much as possible, before using your own money for trades.