A recent report from the Australian research company Investment Trends shows that CFD traders outperformed Spread Betters during the year of 2010.
According to the report, CFD trading resulted in an average return of 20%, while spread betting gave traders just 9%. At the same time CFD traders reported fewer losses than spread betters.
Spread betting is simpler than CFDs since it is possible to trade all markets in the same currency, all commissions are included in the spread, there is usually no minimum deposit to open an account, and there are no capital gains to report. Nevertheless some people prefer to trade CFDs.
Joshua Raymond, market strategist at City Index commented: “one factor which can have an effect on people’s choices is that CFDs sound like a more professional trading product than spread betting. Of course, both products are very similar, but the name spread betting can sometimes work to the product’s detriment when attracting professional traders.”
Spread betting usually attracts traders with smaller portfolios that are more willing to incur extra risk through higher leverage and who are less prepared in terms of education. Given that, it is not a surprise that CFD trading outperformed spread betting.
The US GDP data from Thursday came in below market expectations, increasing only 1.8 percent compared with estimates calling for a rise of 2 percent. But, when looking at specific details inside the report, the information is not so clear cut. There is a lot of macro data to watch today, as Eurozone CPI and U.S. personal spending will help to guide market sentiment.
The interest rate situation in the Eurozone is currently a messy picture, as not all countries in the EU are performing at the same rate of economic growth. Inflation has already led the ECB to raise interest rates even though some of the peripheral countries
Inflation rose 2.7 percent during the month of March and the number for April is forecasted to come in at the same level. In trend terms, the momentum is suggesting of higher inflation, which make policy decisions a difficult task for the ECB.
The economic data from the Eurozone recently that the ECB will probably wait to raise interest rates again and see if inflation for stabilize on its own. There are only a few countries in the EU where inflation is truly a problem (Germany is the primary example) so the ECB is worried about limiting growth in some of the other outlying nations.
The disappointing GDP data from the U.S. took most of the attention away from the fact that consumption increased by 2.7 percent, compared with expectations of 2 percent, and today we will see further consumption data which is expected to show another rise for the month of March. Markets are expecting a rise of 0.5 percent, but considering the current rate of inflation there is a definite possibility that this data could surprise to the upside.
But even if this is the case, commodities prices are causing inflation to rise in an unstable fashion as crude oil has risen nearly 5 percent for the month of April and this will most likely have affected growth in spending for the second quarter.
Additionally, markets will be watching the Chicago PMI numbers, which will give investors an indication of what will be seen in the ISM manufacturing data that will be released next week. The University of Michigan sentiment survey for the month of April will also be released and this is expected to show that consumer confidence will continue to improve in U.S. markets.
Gold is continuing is massive long term uptrend and is making new records highs on a regular basis. Assets performing in this way can be extremely difficult to trade as sellers are afraid is getting in front of the massive upward momentum and buyers have difficulties in finding cheap entry levels. Any dips are expected to be well supported. The first potential buy entry comes in at 1523, followed by 1503 and 1492. Profit targets come in at 1531 and 1538 (the current record high).
The Japanese economy was affected more negatively than previous estimates after the March 11 earthquake as factory output dropped more than at any time since the U.S. occupation of the country. This along with poor retail sales figures has led many to argue that the BoJ, will need to add stimulus so as not to jeopardize future growth prospects.
Factory production declined 15.3 percent on a monthly basis (a record for the postwar era), household spending fell 8.5 percent on a yearly basis and Retail Sales data showed the biggest decline in 13 years, according to the latest releases. This data comes as Standard & Poor’s has downgraded the outlook for the Japanese credit rating.
All of these factors will decrease investor confidence during government debt auctions and affect bond yields in potentially unexpected ways. To aid against this, the BoJ is expected to implement lending programs to try regaining investor confidence in government bonds. The Nikkei 225 Stock gained 1.37 percent to trade above 9820 after the U.S. Federal Reserve suggested growth stimulus is its main focus. The yen is currently at 82 against the Dollar.
National unemployment remains steady at 4.6 percent, against the consensus forecasts for a rise to 4.8 percent. It is possible that this data is flawed, however, as the government was unable to gather responses from the most heavily devastated areas (in Miyagi, Iwate and Fukushima).
Toyota Motors, Honda and Nissan, the three largest car companies in Japan saw drastic reductions in output for the month of March. Total exports declined for the month and consumer confidence dropped to the lowest level on record, according to government data. Toyota has release statements suggesting managers expect production levels to recover by July. Yearly output from Toyota dropped 63 percent to roughly 130,000 vehicles during March. Plant closings after the earthquake are thought to have resulted in a reduction of 400,000 vehicles (globally) through the month of April.
Standard and Poor’s has downgraded the credit outlook for Japan (currently an AA- rating) with a “negative” outlook from “stable” previously. Overall, the effects of this downgrade could mean it will be more difficult for the government to finance rebuilding projects and create economic stability in the most damaged areas.
In relation to GDP, Japan currently has the largest public debt ratio in the world (roughly 200 percent of GDP). Some analysts have suggested that an increase in income and sales taxes will be needed to remedy this issue. Total cost estimates for the damage created by the earthquake and tsunami have reach 25 trillion Yen, potentially.
The Nikkei 225 is approaching critical resistance levels on the daily charts, as prices test the 200 day EMA and historical supply at 9850. This level takes on additional significance as it rests just below the 61.8% Fib of the move from 10900 to 8320. There is an increased likelihood that the Fib level will be tested if immediate resistance breaks as there is a gap in daily price activity (see chart below). Indicators are flattening out at mid levels so any potential breaks from hourly ranges could see large extensions.
27 Apr 2011
IG index, the UK largest spread betting provider, was considered as the number one trading platform for foreign exchange by people participating in an annual survey conducted by the Australian research company Investment Trends. The survey involved 14,000 individuals in the UK.
Currency markets are very sensitive to any geopolitical and economic event. The earthquake in Japan, MENA turmoil and the sovereign debt crisis in Europe have been key drivers for foreign currency markets lately, generating extra volatility and capturing traders’ interest.
Tim Hughes, Managing Director of IG Index, commented: “There’s rarely a quiet day in forex markets and the big swings that can be seen literally on an hourly basis have always made it a popular option for those trading in the shorter term.”
“We’re also aware that traditional margined forex products can prove somewhat daunting for a retail audience whereas the pricing transparency of placing a spread bet – so you win or lose for every pip the currency pair moves – is far easier to understand. Working in pounds per point means that the outcome itself can’t be impacted by exchange rate risk and as with all spread bets, profits are tax-free.”
IG index offers a wide variety of currency crosses and pairs, including some exotic markets, offering competitive spreads and daily forex reports that certainly contribute for investors’ preferences showed in Investment Trends survey.
WorldSpreads, one of the leading UK spread betting companies, claimed in a recent report that new an established traders with a spread betting account at WorldSpreads holding a minimum of GBP 5,000 in their accounts, have saved an average of GBP 6,600 in trading costs in six months since September. According to the company the saving corresponds to GBP 7.80 per trade.
WorldSpreads is running a promotion since September 2010 known as Zero Spread Trading, in which the company charges no spread in the following markets: UK 100, Dax 30, Cac 40, Euro Stoxx 50, Gilt, Bund, Eur/Gbp, Eur/Usd, Aud/Usd and Usd/Jpy.
“Frequent traders still stuck with our competitors are wasting thousands of pounds a year… Zero Spreads has been a risk worth taking. We said this would be no introductory offer, timed promotion or loss leader and our established and new customers have taken us at our word. Together, we have set the cost of intra-day spread betting to zero. ” said Conor Foley, WorldSpreads Group CEO.
In order to enjoy this promotion, a trader needs to apply for a platinum account with a minimum deposit of GBP 5,000.