What are the tightest spreads for trading CFDs?

[Brian Hayslip]

[Sheila Olson]

In CFD trading, as in stocks and other trading instruments, the spread is the difference between the quoted bid and ask price. The buy price, or bid, is always higher than the sell price, or ask. When you enter a buy trade, you pay the bid price. When you exit, you get the ask price. Because the trader has to pay the spread, you don’t see profit from the trade until the price has moved in your direction at least the amount of the bid-ask spread. In other words, if the spread for EUR/USD forex pairs is 0.9 points, the price needs to move 1 point before the trade is profitable. If it stays within the spread, it’s a losing trade. Clearly, tighter spreads are a CFD trader’s friend. Spreads are usually tighter in highly liquid markets, such as major indices and popular forex pairs. Spreads vary by broker. IG, the largest forex broker by market cap, has CFD spreads as low as 0.6 points on EUR/USD pairs. Intertrader also offers a 0.6 point rolling daily spread on EUR/USD, 1 point on the UK 100, and 4 points on gold. But spreads aren’t the only trading costs associated with CFDs. You typically also pay a brokerage commission if you trade CFDs on shares. If you keep a position open overnight, there may be associated holding costs, which are either positive or negative, depending on the trade. In most cases, you’ll pay broker’s data fees for the CFD price data. Finally, CFDs are leveraged, and you must maintain margin requirements in order to keep a trade open. If you can’t cover your position, the broker will close it for you, and you will have to take the loss. You can mitigate your risk with stop loss limits, but if there’s a market closure or sharp price movement, you may still have exposure. The best way to get tight spreads is to look for highly liquid markets such as major stocks, indices, and forex. Spreads will always be wide for futures and commodities, so you have to price them into your trading strategy. You should also compare brokers and look at the fee structures as a whole, not simply spreads, so you can maximize your profit potential.

[Melinda]

Hi Brian,
Like other instruments, a spread indicates the difference between an asset’s buy and bid values in CFD trading. The difference in the underlying cost should exceed the spread amount for you to make a profit. Tighter spreads present benefits such as minimal trading costs and less volatile markets. eToro is one of the brokers you should consider. The company offers 1 pip for AUD/USD instruments. Australian-founded IC Markets also averages 0.1 pips for popular instruments. Likewise, Israel-based Plus500 offers 0.1 pips for EUR/USD pairs earning it a spot in the LSE. Not forgetting UK’s Darwinex that registers 0.2-0.3 pips for EUR/USD pairs. Although high-impact news may widen the CFD spreads when the market is closing, they remain low most of the time.