Difference between spread betting vs CFD trading
Spread betting and CFD trading are margined products and can provide similar economic benefits to investments in shares, indices, commodities, and currencies. A form of financial derivatives trading, spread betting is popular because profits are exempt from capital gains tax and stamp duty*. Both products are equally popular with traders that work from home and full-time office workers.
Continue reading for some of the main characteristics of spread betting and CFD trading. You can get started now by opening a live spread betting account or CFD trading account.
Spread betting vs CFDs
The key difference between spread betting and CFD trading is how they are treated for taxation. Spread betting is free from capital gains tax (CGT) while CFD trading requires you to pay CGT*. Spread betting is also only available in the UK or Ireland, while CFDs are available globally.
Spread betting stakes an amount of money for each pip (prince in percentage) in the underlying asset, whereas CFD trading exchanges the difference in price from the start to the end of the agreed contract. You own the underlying asset in neither case, you merely speculate on their values.
How does spread betting work?
When you spread bet, you choose whether the price of a product or financial instrument (such as a share, stock index, currency pair or commodity) is likely to go up or down, and decide how much to bet. The amount you wish to bet per point of movement in price is your stake.
For example, if you are spread betting forex and the currency pair’s price moves in your favour, your profit is calculated by multiplying your original stake size by the number of points the instrument has moved. If it goes against you, your loss will be calculated in the same way. Remember, losses can exceed deposits.
Read our article on ‘what is spread betting, which gives an overview of the advantages of spread betting and the risks involved. If you’re ready to start trading, familiarise yourself with our best spread betting UK platform^ award-winner.
How do CFDs work?
When trading contracts for difference, you buy or sell a number of units or a specific amount of CFDs in an instrument, similar to the way you would when trading physical instruments. With CFD trading, however, you don’t own the underlying asset and have the ability to trade on margin. This allows you to take a position with a notional value of much more than the amount of money you are required to deposit.**
Learn more about contracts for difference and the advantages of CFD trading. If you’re ready to trade, familiarise yourself with our best CFD trading platform^ award-winner.