Spread TRADING or is it spread BETTING

Spread trading is a new phenomenon in trading. You might think that it's like binary options. However, you are mistaken. Binary options were, in fact, an additional form of wagering. However, spread betting is more akin to CFDs; the primary distinction is that your order is not executed through STP (Straight Through Process) or ECN (Electric Communication Network), and you are NOT connected to the markets. In spread trading, customers are collaborating with a modernized DD (Dealing Desk) broker, as DD necessitates an order book for trade execution, but in spread betting, it does not even need high liquidity. In this article, we will delve deeper into how this phenomenon works.

 

All of the top-tier brokers are NDD (No Dealing Desk), also known as A-Book. However, those who are conscientious and aspire to be market makers must have high liquidity for order execution. In other words, they must have an order book, meaning they have to have high liquidity for supply (ask price) and demand (bid price) to execute their orders. Consequently, they incur high spreads, a significant amount of slippage, and some shady candles, which leads to a higher income.

 

However, spread betting is a novel phenomenon that does not require an order book or any form of supply and demand. Users can trade at the exact moment with zero spread, as there is no bid or ask price. They are betting with the broker that the price will increase, and users can close their positions at any time. If customers realize a profit, the broker will lose money, and if they lose some money, the broker will make some profits. As you are aware, in Vegas, there is a saying that is frequently used: the house ALWAYS WINS.

 

These brokers are required to include the following statement on their landing page: "Financial Spread Bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 86% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money", as mandated by their regulators.
They acknowledged that over 86% of their clients experience financial losses; consequently, they are accruing substantial profits.
As mentioned earlier, in spread trading, you are betting on the price movements of specific assets without owning them. Specifically, you are betting on the rise or decline of a chosen asset.

 

However, in CFDs, users are entering into a contract with a broker to exchange the difference in the value of an asset from the time the contract is opened until it is closed by them. The broker will transmit your transaction to LPs in CFDs (this process is referred to as STP). In the DMA method, they will also transfer your money to the liquidity provider in addition to your order. You will receive a lower spread if an LP has high liquidity, which most certainly the spread is lower than DD broker because of much higher liquidity. A broker is unable to offer high leverage if they are using DMA, as they must send your money along with your order. Consequently, they typically use the STP type for higher leverage, as they must pay the LP after you close your positions. Consequently, they can provide the extra liquidity as a margin for your trades, allowing them to offer high leverage. Additionally, they will receive funds from LP and transmit them to your account when you realize profits. They will transfer the funds to LP in the event that the user has realized losses.

 

In spread betting (or spread trading), the broker keeps your money, and your orders don't go to the LPs. Consequently, there is no order book, and there is no bid and ask price. Hence, the broker offers clients tight spreads.
They can provide their users with the fastest order execution and extremely high leverage in the world because they are not sending it anywhere, and all of these are happening internally; however, it is important to remember that this literally is betting and not trading. In certain countries, this form of trading may be prohibited, and in Islamic countries, it is not considered HALAL.

 

Spread Betting Advantages

 

However, there are also advantages to this approach. As you are aware, wagering is not taxed in numerous countries, which means that spread betting income is not subject to taxation.
An additional benefit is that you are not required to exchange the money or pay fees, which allows you to trade in any currency you desire.
For example, if you reside in Pakistan and wish to engage in commodity trading with the Pakistani Rupee, it may be challenging for you to convert the numbers and calculate the profit and loss associated with each trade.
However, in spread betting, there is no requirement for lot size calculation or currency exchange, as you are not connected to any network and can inform the broker that you are willing to risk 100 Rupees for each point of price movement. We must admit, it is quite simple and comforting.

 

Drawbacks of Spread Trading

 

Why is it that no one is utilizing it, since it is all in excellent condition? Additionally, in the past, B-book brokers mostly were despised, and clients were in search of A-book brokers to continue their trading.
This spread trading is identical to B-Book, with the sole distinction being that the spread is zero. In fact, they are offering their customers a greater discount due to a decline in their market share, which necessitated action. The primary cause of the resentment was the possibility that they had manipulated the prices. For instance, the price in their charts would reach a specific price that has more weight based on their users order book, known as their stop loss, whereas in real-time charts, it is significantly distanced from their stop loss price, and there is no effective remedy.

No one is aware of the nature of this trading method called spread trading.

Let us further simplify this: brokers in this scenario profit from their clients' losses, and humans are naturally greedy, so they will do whatever it takes to increase their profits. This includes compelling their clients to lose more money, similar to a casino, and attracting clients with extravagant and luxurious advertisements. Users are powerless to prevent problems from occurring.

 

Why is NDD superior to DD?

 

Nevertheless, in NDD and well-trusted brokers, the broker's profitability is contingent upon the continuation of their users' trades rather than the results of their trades. They will make money by encouraging their clients to trade more. frequently and in order to continue to trade, traders must make profits; if they lose their money eventually, they will surrender to markets and stop trading; therefore, NDD brokers must do everything in their power to ensure that everything runs smoothly and in the best interest of their clients in order to gain their trust and loyalty. Their profit is contingent upon the volume of trades executed by clients, rather than their profit and loss. They do not generate revenue through SWAP or spread as well. Indeed, they extract it from their clients; however, they are required to pay it back to their Liquidity Providers.

 

Why is Spread Betting Suspicious?

 

This is the reason why this method is also met with high suspicion. When a broker is honest and formidable, they are earning a substantial income. Therefore, why should they transition to a wagering application? Certainly, there may be issues that we are not aware of.

Another distinction is the availability. CFDs are widely recognized and accessible in numerous countries worldwide; however, SPREAD betting or trading is currently only available in the United Kingdom and Ireland.

 

Why has nobody noticed what spread trading is and the distinction with CFDs?

 

The question of why people do not observe the difference is easily answered, as they both share numerous common features. resides within these similarities:

• Leverage: Both platforms enable traders to trade on margin, which enables them to acquire substantial market exposure with a relatively low initial deposit.

• Zero Ownership: Neither approach necessitates asset ownership.

• Market versatility: traders can access a wide variety of financial markets, such as commodities, Forex, stocks, indices, and shares, using either method.