Unlike exchange-traded securities, both Spread Betting and Contracts for difference (CFD) are traded over the counter. A CFD is a bilateral derivatives contract where the buyer agrees to pay the seller if the price of the security drops and the seller agrees to compensate the buyer in the event of the price of the security rising. Spread betting likewise is a derivatives product with traders betting on a range of potential results in the price of the underlying security.
Before getting into the pros and cons of the OTC traded products, a quick look at the key features of the two products
Ex: Betting on a 10-pip upside in the EURUSD where 1-pip= $100.
Coming to the pros and cons
Both the products have their own set of pros and cons. While CFD’s may be the preferred choice of hedge funds and larger players, spread betting could be more suitable for the less experienced trader looking to place smaller bets.