The Spread In CFD Trading

When trading CFDs, the very visible costs in trading are the interest payments and, the commission (brokerage). Sometimes the brokerage is zero. Looks good so far.

However the spead can be a costs that many new CFD traders are not familair with.

You see, the spread is the difference between the bid and the ask prices. You buy at the ask, which is the higher price (or offer as it's also known) and sell at the bid, which is the lower price. This is one way that a broker of any trading instrument makes their money.

Typiclaly the 2 prices in the spread aren't very far apart. However, there may be times where the spread widens quite a bit and hence if you're trying to sell, you'll actually sell at a lower price than you may expect due to the widening of the spread and hence make not as high a profit as you could have.

Depending on the CFD provider, the spread may be widest first thing in the mornign for the first 5-15 minutes. So trading at this time may cause erratic results.

How do you get around it?

You could:

1. Trade after this morning havoc is over. So watch the market and see when the spread narrows again.

The risk of this is that if the price of the stock CFD is falling and you're trying to sell, the market movement may negate any benefits you get by waiting for the spread to settle.

2. Use a DMA CFD account where you can get the actual opening price (participate in the opening auction), if you wish to exit the price at the opening price for whatever reason, eg you design and trade a system where you get out at the open.

The advantage of this is that you can place the trade the night before (with many CFD providers you can) and not have to hang around the screen for half an hour or more in the morning wondering when to press the sell button, and will save you time and energy.

So there you have it. These are the basic ways you can get around the spread going crazy in the mornings with some CFD providers.