Email of the day (1)
Comment of the Day

January 27 2011

Commentary by Eoin Treacy

Email of the day (1)

on trading vehicles:
"In recent weeks there has been discussion on ways of trading such as futures, spread-betting and ETFs. What is your opinion on CFD trading relative to these?"

Eoin Treacy's view Thank you for this question which others may also be interested in. In the UK and Ireland spread-betting is free from capital gains tax which makes it an attractive trading medium for a large number of people. For those in countries without this tax advantage and interested in leveraged trading, CFDs are probably a more attractive option. Here is a link to a detailed article on the differences between the two.

I think that tax considerations aside, it is vitally important to have a thorough understanding of the investment vehicles you choose. Spread-betting, CFDs, ETFs and futures all have a justifiable place in the investment universe. Brokers are supposed to follow strict "Know Your Client" rules, but investors should not feel free to outsource this responsibility. All too often we hear of people who have taken a loss because they did not understand what they were investing in.

Our discussion of trading vehicles over the last few months has centered primarily on the commodity and Treasury markets. If one has the ambition of initiating unleveraged positions for a long-term investment portfolio, then any vehicle that employs derivatives or leverage is unlikely to be suitable. On the other hand if one aims to initiate short to medium-term positions and is willing to spend time and energy monitoring them, then derivatives and leverage are more appropriate.

Back to top