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Author Topic: Isn't Contract-For-Difference or CFD a form of gambling?  (Read 1128 times)
cryptogeeknext
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November 10, 2014, 05:15:10 PM
 #1

Hi guys,

As I understand it, with CFDs one doesn't own an underlaying stock, but rather makes a gamble on wether its value would increase or decrease, thus taking the risk of losing even though the stock itself might do just fine in the long term.

How is that different from making bets on flipping a coin and why one form is allowed, while other is not?

Cheers!

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murraypaul
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November 10, 2014, 05:28:46 PM
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As I understand it, with CFDs one doesn't own an underlaying stock, but rather makes a gamble on wether its value would increase or decrease, thus taking the risk of losing even though the stock itself might do just fine in the long term.

How is that different from making bets on flipping a coin and why one form is allowed, while other is not?

One is something where you can make an informed decision as to which is more likely, up or down.
The other is completely random, heads or tails.
It is the same distinction between competitions and lotteries.
One is at least in part a game of skill. The other is a pure game of luck.

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November 11, 2014, 04:58:04 AM
 #3

No. It is much more commonly used as a way to hedge an existing position in either the security the CFD is a derivative of or a similar security. It is a way for market participants to manage risks
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November 11, 2014, 06:31:24 AM
 #4

a problem with gambling, betting? yes I know it's very hard to accept that their will always be a loser in every bet, gamble... I bet you will not like my answer? Did I lose?

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November 11, 2014, 12:54:58 PM
 #5

Thanks for the answers!

So the fact that engaging in a "game of skill" is more welcome by society, than exercising "pure luck" might be considered an incentive for individuals to evolve and develop skills. I don't have problem with gambling/betting, nor do I engage in these activities, just thought that exercising luck is a valid experience and if one wants to get lucky, one needs to respect the luck of others.

This actually might apply to the debates about fairness of distribution of coins in crypto-currencies. I often see people attempting to devalue one coin or another just because some got lucky by making a bet early in the game, not realising that one day they might get lucky as well. Even in the game of skill, there is always an element of luck.

Cheers!

there is an element of everything in every thing
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November 11, 2014, 02:24:51 PM
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For most of ppl I think they are same. They have no expertise in the game of skill. They made arbitrary gamble or bet and end up losing.

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November 11, 2014, 03:20:25 PM
 #7

It can be used to hedge yes
It also is a pretty regular component of spread betting in all manner of ball sports esp football and cricket

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November 12, 2014, 06:51:19 AM
 #8

Thanks for the answers!

So the fact that engaging in a "game of skill" is more welcome by society, than exercising "pure luck" might be considered an incentive for individuals to evolve and develop skills. I don't have problem with gambling/betting, nor do I engage in these activities, just thought that exercising luck is a valid experience and if one wants to get lucky, one needs to respect the luck of others.

This actually might apply to the debates about fairness of distribution of coins in crypto-currencies. I often see people attempting to devalue one coin or another just because some got lucky by making a bet early in the game, not realising that one day they might get lucky as well. Even in the game of skill, there is always an element of luck.

Cheers!
A CFD is far from a 'game of skill' it is a legitimate way for people to hedge their risks of various prices of moving in certain directions. It is a way for non-financial companies to lock in their costs at certain levels over long periods of time so they can properly plan and budget
cryptogeeknext
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November 12, 2014, 01:12:11 PM
 #9

Thanks for the answers!

So the fact that engaging in a "game of skill" is more welcome by society, than exercising "pure luck" might be considered an incentive for individuals to evolve and develop skills. I don't have problem with gambling/betting, nor do I engage in these activities, just thought that exercising luck is a valid experience and if one wants to get lucky, one needs to respect the luck of others.

This actually might apply to the debates about fairness of distribution of coins in crypto-currencies. I often see people attempting to devalue one coin or another just because some got lucky by making a bet early in the game, not realising that one day they might get lucky as well. Even in the game of skill, there is always an element of luck.

Cheers!
A CFD is far from a 'game of skill' it is a legitimate way for people to hedge their risks of various prices of moving in certain directions. It is a way for non-financial companies to lock in their costs at certain levels over long periods of time so they can properly plan and budget

Yeah, apparently I haven't thought this through before asking. I'm not a financial guru, so this gambling analogy was the first thing to come to my mind.

there is an element of everything in every thing
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November 13, 2014, 07:50:15 AM
 #10

It can be used to hedge yes
It also is a pretty regular component of spread betting in all manner of ball sports esp football and cricket
CFD is really never used for sports betting, sports betting is still gambling and involves the uses of point spreads and betting that a team will win by a certain criteria.

CFD on the other hand is essentially a futures contract with the exception that neither party intends to take possession of the goods that the futures contract is derived from
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November 13, 2014, 10:28:12 AM
 #11

The main difference in the UK between CFD trading and spread betting is that CFD's are treated as investments, whereas spread positions are seen as pure gambles by the tax authorities.
CFD profits and losses are taxable/tax allowable, spread betting profits are tax free but losses are not allowable against other income.
This is how the tax man draws a line between defining a 'calculated' risk and a pure gamble.

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cryptogeeknext
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November 13, 2014, 08:31:37 PM
 #12

It can be used to hedge yes
It also is a pretty regular component of spread betting in all manner of ball sports esp football and cricket
CFD is really never used for sports betting, sports betting is still gambling and involves the uses of point spreads and betting that a team will win by a certain criteria.

CFD on the other hand is essentially a futures contract with the exception that neither party intends to take possession of the goods that the futures contract is derived from

The main difference in the UK between CFD trading and spread betting is that CFD's are treated as investments, whereas spread positions are seen as pure gambles by the tax authorities.
CFD profits and losses are taxable/tax allowable, spread betting profits are tax free but losses are not allowable against other income.
This is how the tax man draws a line between defining a 'calculated' risk and a pure gamble.


Interesting. Thanks!

there is an element of everything in every thing
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