When traders think about profitability, they often focus on winning strategies and strong signals. However, one overlooked factor that can significantly impact returns is the spread. This is the difference between the bid and ask price, and it plays a key role in every trade placed. In the case of Share CFDs, spreads vary not only by the asset you are trading but also by the broker you choose. Understanding how these spreads work can help reduce costs and improve performance.
Why Broker Choice Matters
Different brokers have different pricing models, and this can have a direct impact on your trading experience. Some brokers offer tight spreads with a commission per trade, while others incorporate their fees into wider spreads and claim to offer commission-free trading. The structure of these fees influences your breakeven point and potential profitability on each trade.
With Share CFDs, spread size can differ significantly across brokers depending on their access to liquidity, platform efficiency, and pricing policy. For high-volume traders or those operating on tight margins, even a small difference in spreads can add up to hundreds or even thousands of pounds over time.
Spreads Are Not Always Fixed
Some traders assume spreads remain the same throughout the day. This is not always true. In reality, spreads often widen during periods of low liquidity or high volatility. For example, spreads can be tighter during the main hours of the exchange but may widen in pre-market or after-hours trading. The same applies during major economic events or earnings reports when price movement can become erratic.
Understanding this fluctuation is essential when trading Share CFDs, as entering or exiting a trade during a wider spread window could lead to unnecessary losses. Knowing when your broker typically widens spreads helps you avoid unfavorable entry points.
How Asset Class Influences Spread Size
Not all share CFDs are priced equally. Some stocks are more liquid and attract higher trading volumes, which usually leads to tighter spreads. Blue-chip stocks like those in the FTSE 100 or S&P 500 often have smaller spreads compared to mid-cap or low-volume stocks. This is because there is a larger pool of buyers and sellers in the market, leading to smoother execution.
Less liquid shares or smaller companies tend to have wider spreads, especially if the broker does not have strong connections to deep liquidity providers. Traders working with Share CFDs should prioritize assets that not only align with their strategy but also have reasonable spread costs to maximize efficiency.
Comparing Spreads Across Platforms
It is worthwhile for traders to compare brokers before choosing a platform. Many CFD brokers publish sample spreads on their websites, showing average bid-ask differences for popular instruments. However, it is better to observe real-time spreads during live trading hours or through demo accounts to see how pricing behaves under different conditions.
When evaluating Share CFDs, consider both the spread and any additional charges such as overnight financing fees or commissions. A broker that seems cheaper on spreads might compensate through hidden costs, making it essential to assess the full fee structure.
Taking Advantage of Low-Spread Windows
To minimize trading costs, focus on trading during high-liquidity periods. These are usually the first few hours after a market opens or when major economic news is expected. These time windows tend to compress spreads and allow faster trade execution. Traders working with Share CFDs can use this knowledge to structure their trading hours and avoid unnecessary fees caused by wide spreads.
Trading performance is not just about entry points and setups. It is also about minimizing costs along the way. By selecting a broker with competitive spreads and choosing the right asset classes, traders can create a more efficient trading environment. Share CFDs provide the flexibility to explore multiple markets, but understanding how spreads vary ensures that every trade works harder for your bottom line.
