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What is the Spread on a CFD?

What is the Spread on a CFD?
Asked by
Sam Button categorie-icon time-icon5 months ago

Justin Freeman
Answered time-icon4 months ago

Spread is a term that relates to price.

When trading in the CFD there will be an Offer price and a Bid price quoted by the broker platform. The Offer is the best price at which you can execute a buy trade and the Bid price is the best price you can achieve if selling. The difference between the two prices is the Spread.

The City Index platform is below quoting the ability to trade in Danone CFD and Sell at 62.550 and Buy at 62.580. The Spread in this case is 0.03 Euro Cents.

Spread is largely driven by market liquidity. Generally the case is that the greater the amount of trading activity the tighter the spread will be. More buyers and sellers being present means there is more chance of finding someone who takes the other side of the trade to you.

Particular instruments can see the spread narrow or widen according to liquidity in the market, for example, due to time of day. Although it’s pretty much possible to trade some Index and Forex CFDs 24-hrs a day the spread will typically be tighter during what are seen as ‘market hours’ and will then widen when markets are quieter.

Other instances of Spread widening can be during times of extreme market volatility. At those times the spread widens because market participants are unsure of a realistic value and are reluctant to take on a position that they might not be able to move on if the market in general is undergoing extreme shifts.

You will also find different Broker Platforms apply different spreads on the same CFDs. As Spread is a cost that you have some control over, shopping around for the tightest Spread is a quick win and should form part of your Broker Comparison Analysis.

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