One of the most significant benefits of trading is market leverage. It’s where you’re able to control a lot more units of an asset than you could if you had bought or sold it outright, using what are known as derivatives. The simplest way to purchase derivatives is through CFDs and spread betting, which has pros and cons.
The popularity of CFDs and spread betting has never been higher, as more people look for a way to make their money go further. Both offer the potential for tax-free profits, but traders should consider differences between them before they take the plunge.
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What is a Contract for Difference?
A Contract for Difference (CFD) is essentially a contract between two parties, one who wants to buy the derivative at a lower price and another who wants to sell it at a higher price. Because both contracts involve leverage, your losses are limited – however, so are your gains if the contract moves in the wrong direction after purchase. This leads many people to use CFDs as short term instruments.
What is a Spread Bet?
A spread bet is a type of derivative that’s traded on margin, which means you’re able to get market leverage without having to put the total trade down upfront. You can buy or sell from pre-existing positions at any point; however, it does give you unlimited losses and gains – leaving your security deposit as the only thing there to stop you from getting into trouble. If you go wrong with a spread bet, it’s effortless to lose a lot of money quickly. However, if you have some knowledge under your belt and don’t want to risk going beyond 36% annualised volatility, they can be great tools for trading, especially in the short term.
CFDs vs Spread betting in Singapore.
So which should you use in Singapore? CFDs are regulated by the Monetary Authority of Singapore (MAS), while spread betting is not. If you’re looking for a safe investment, CFDs might be the way to go. Spread betting companies aren’t subject to stringent capital requirements either, meaning they can offer much higher leverage than CFD providers. However, with that comes additional risk.
When it comes down to it, both CFDs and spread betting have their benefits and drawbacks as it depends on your individual needs and what you’re hoping to get out of your trading experience. If you’re looking for a relatively safe investment with good returns, go for a CFD; if you’re after high leverage and the potential for large profits (and losses), spread betting might be more your thing.
So which one is right for you?
Well, if you’re looking for significant returns, then spread betting is probably the way to go – but remember that it can also be a lot riskier. If you’re happy with smaller profits, then CFDs may be more your thing. And of course, you need to bear in mind that with CFDs, you’re also taking on added risk in the form of leverage.
How to get market leverage through CFDs or Spread betting
Leverage is what sets CFDs apart from other forms of trading, and it’s what can make them so attractive, especially when the markets are moving fast. It works by allowing you to trade using a much more significant sum of money than you have in your account so that you can make a bigger profit (or loss) from a smaller price movement. This can be risky, but it also means that you can make a lot more money with a relatively small investment.
Final Word
When it comes to getting market leverage, CFDs are hard to beat. So if you’re looking to maximise your profits or want the potential for significant returns, then this is the way to go. Remember to use caution and never trade more than you can afford to lose—beginner traders interested in CFD trading should use reputable online brokers like Saxo Bank.
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