The use of contracts for difference (‘CFD’) spread bets and binary options (‘forbin’) to trade foreign exchange (‘forex’) commodities, and stocks and shares in volatile financial markets

Paul Barnes

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the popularity of forex and derivatives - contracts for difference (‘CFD’) spread bets and binary options - at a time when the markets are turbulent and speculating by trading is popular. The paper provides theoretical calculations of the probability of success of trading in this way together with empirical evidence. These show that it is not possible for the trader to trade profitably over the medium- to long-term as these markets are efficient and that the broker, who is the counterparty, will win just like a casino or bookie. It is also shown that these markets have become susceptible to scams and fraud but argues such actions are unnecessary for the broker as it will win as long as the trader continues to bet. Finally, it is argued that whilst forex is the most popular asset traded, its price movements are more difficult to predict and are much smaller compared with stocks and shares and commodities, making it even more difficult for traders to trade them successfully.

Keywords: Stocks; shares; securities; contracts for difference; CFD; spread betting; binary options; forex; forbin; scam; fraud; boiler room; bucket shop. (search for similar items in EconPapers)
JEL-codes: G2 G21 G23 G28 K2 K22 K4 K42 (search for similar items in EconPapers)
Date: 2021-01-28, Revised 2021-01-28
New Economics Papers: this item is included in nep-law
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https://mpra.ub.uni-muenchen.de/105580/1/MPRA_paper_105580.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/105743/1/MPRA_paper_105580.pdf revised version (application/pdf)

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