What are derivatives?

Hi,

My first post. I am totally new trading. I have often had a curious interest in trading on the markets.

I know that there are number of different methods that I can do this, and some of the most attractive seems to be derivatives trading, like spreadbetting or CFD trading.

What is the main differences between the two? I believe I am able to spreadbet, but can;t trade CFDs because I have no experience. Aren't they the same thing?

Sorry if this question has been asked before.

Arbiter said:

Hi,

My first post. I am totally new trading. I have often had a curious interest in trading on the markets.

I know that there are number of different methods that I can do this, and some of the most attractive seems to be derivatives trading, like spreadbetting or CFD trading.

What is the main differences between the two? I believe I am able to spreadbet, but can;t trade CFDs because I have no experience. Aren't they the same thing?

Sorry if this question has been asked before.

Click to expand...

Hello Arbiter,

derivatives are products which when you trade, you don't actually buy or sell anything physical(other than a contract), the price is "derived" from an underlying product, such as a stock or a barrel of oil etc.

Derivatives are spreadbets, CFD's, Options, Futures.....

There's very little difference between a spreadbet and a CFD. You'll bet at a "£/pt movement" with spreadbet, or open a contract equivalent to a certain "£/pt movement" with a CFD. I think provided you ticked the box saying "I have some experience" then you'd easily open a CFD account an nobody would care. However, the main difference is that you'll pay a fee for buying or selling a CFD, and with spreadbetting you wont, at the expense of a slightly wider spread. At some point CFD's become cheaper than spreadbetting, and vice versa. Unlike CFD's Spreadbetting is tax free but for most trader this wont really matter as "most lose" anyway.

Cheers,
UTB

the blades said:

Hello Arbiter,

derivatives are products which when you trade, you don't actually buy or sell anything 9other than a contract), the price is "derived" from an underlying product, such as a stock or a barrel of oil etc.

There's very little difference between a spreadbet and a CFD. You'll bet at a "£/pt movement" with spreadbet, or open a contract equivalent to a certain "£/pt movement" with a CFD. I think provided you ticked the box saying "I have some experience" then you'd easily open a CFD account an nobody would care. However, the main difference is that you'll pay a fee for buying or selling a CFD, and with spreadbetting you wont, at the expense of a slightly wider spread. At some point CFD's become cheaper than spreadbetting, and vice versa. Unlike CFD's Spreadbetting is tax free but for most trader this wont really matter as "most lose" anyway.

Cheers,
UTB

Click to expand...

Thanks blades. That clears things up for me.