7 Key Features of Spread Trading

Spread trading has revolutionised the way private traders engage with financial markets. Whether you’re trading forex, indices, or commodities, understanding the unique features of spread trading can help you make informed decisions. This trading method provides flexibility, accessibility, and the ability to profit in both rising and falling markets.

In this article, we’ll explore the seven key features that make spread trading a versatile and attractive option for traders of all levels.

1. A Contract Between You and the Broker

2. Market-Reflected Pricing

Unlike some derivatives, spread trading contracts mirror the real market prices. For example, if you trade a META spread contract, its price will move in sync with the actual META stock.

Why this matters

• Ensures that price movements are transparent and accurate.
• Helps traders react to real-time market conditions.
• Means you are speculating on real market fluctuations, not artificially created prices.
  
  

Even though you don’t own the asset, your trading experience is directly linked to market movements, making spread trading an effective way to capitalise on price changes.

3. Margin Trading: Amplifying Your Exposure

One of the biggest advantages of spread trading is the ability to trade on margin. This means you only need to deposit a small percentage of the total trade value to open a position.

How margin works

• If a broker offers 1:100 leverage, you only need 1% of the trade’s value to open the position.
• For a £10,000 trade, you would only need £100 in margin capital.

The benefits and risks of margin trading

• Increases potential profits, as you control larger positions.
• Allows traders with smaller capital to access bigger trades.
• Amplifies losses, meaning proper risk management is essential.
  
  

Margin trading is a powerful tool, but traders should use it responsibly to avoid excessive risk exposure.

4. Ability to Profit from Falling Markets (Short Selling)

Unlike traditional investing, where you only make money if an asset’s price rises, spread trading allows you to short the market and profit from falling prices.

Example: Shorting gold (XAU/USD)

• If gold is currently trading at $2,000 per ounce, and you believe it will drop to $1,950, you can sell (short) a gold spread trade.
• If the price falls as expected, you can close your position at $1,950, locking in a profit.
• If the price rises instead, you will incur a loss.
  
  

Short selling is a key advantage of spread trading, allowing traders to benefit in both bullish and bearish markets.

5. Commission-Free Trading

One of the key attractions of spread trading is that most brokers do not charge commissions. Instead, they make money through the spread—the difference between the buy (ask) price and the sell (bid) price.

Why this matters for traders

• Lower costs: No commission fees mean you keep more of your profits.
• Simplified pricing: You only need to consider the spread when evaluating trade costs.
• Better accessibility: More traders can participate without worrying about commission expenses.
  
  

However, traders should be aware that wider spreads during volatile periods can increase trading costs.

6. Access to a Wide Range of Markets

Spread trading provides access to thousands of markets, including:

• Forex (EUR/USD, GBP/USD, USD/JPY, etc.)
• Indices (FTSE, DAX, CAC, NASDAQ, etc.)
• Commodities (Gold, Silver, Oil, etc.)
• Shares (Apple, Tesla, Amazon, Google, etc.)
• Cryptocurrencies (Bitcoin, Ethereum, etc.)
  
  

Why this is important

• Traders can diversify their strategies by trading multiple assets.
• It’s possible to trade global markets 24/5 with forex and commodities.
• Brokers may use alternative names for certain instruments (for copyright reasons), but the price movements remain accurate.
  
  

This broad market access makes spread trading one of the most flexible forms of online trading.

7. No Asset Ownership – Just Pure Speculation

Unlike traditional investing, spread traders never own the underlying asset. This means you are purely speculating on price movements without the obligations of ownership.

Benefits of not owning the asset

• No need for storage or logistics (e.g., for commodities like oil or gold).
• No dividend or shareholder responsibilities (for stocks).
• Faster and more flexible trading (buying and selling at any time).
  
  

This makes spread trading a great choice for traders who want quick market access without the complexities of traditional asset ownership.

Final Thoughts

Spread trading offers a flexible, cost-effective, and powerful way to trade financial markets. By understanding its key features—such as margin trading, short selling, and commission-free trades—you can use spread trading as part of a well-rounded strategy.

Whether you’re a beginner or an experienced trader, spread trading allows you to access a wide range of markets with lower capital requirements and more trading opportunities.

Would you like help choosing a spread trading broker? Explore our broker comparison tools to find the lowest spreads and best trading conditions.