The debate that involves CFD trading and spread betting has been going on for years. Though they are both leveraged products, the tax treatment is totally different from one another. This is just one of the many differences between CFD and spread betting. But which one is the best option for you? We will tackle everything in this article.
Trading CFD is when you speculate on the difference between the opening and closing price of the contract. With Contract for Difference (CFD), you are capable of buying or selling anytime you want and utilizing leverage to gain more profit. Most importantly, you don’t own the underlying asset which exempts you from paying stamp duty.
Spread Betting, on the other hand, is simply speculating whether the price will rise or fall. As for your position size, it will be the amount you bet on every point of movement you have. For instance, you are thinking that the price of USD/EUR will go up. You bet for £5 per point on your preferred currency pair. If the price really goes up, you will receive a profit of £5 per point. But if the price declines, you will also lose £5 per point.
Similarities of CFD Trading and Spread Betting
There are similarities in CFD and Spread betting such as:
Both CFD and spread betting are leveraged products. This means that you can increase the size of your position even with a small deposit.
Spread betting and CFD are also derivatives. Traders don’t own the underlying asset.
- Holding Costs
There are holding fees for both CFD and spread betting.
- Market Access
These two allow its traders to invest in a wide range of markets including futures, forex trading, options, gold, and cryptocurrencies.
- Long & Short
Both instruments offer long and short positions.
- Demo Accounts
Demo accounts are very useful, especially for new traders. Luckily, both spread betting and CFD offer demo accounts before traders invest their real money. It’s like getting-to-know trading without spending your hard cash.
You can trade CFD and spread betting thru mobile apps or on the desktop.
If you think that you lack knowledge of CFD and spread betting, you don’t have to worry about anything. There are a lot of online courses available nowadays and even tutorial videos with lots of tips and facts about these two derivatives.
- Short-term and long-term
If you are a day-trader, then spread betting and CFD are suitable for you.
Differences between CFD Trading and Spread Betting
- Tax – Tax implications of CFD trading and Spread betting is totally different. In the UK, spread betting is exempted from capital gains tax and stamp duty. As for CFD traders, they are exempted from paying the stamp duty but not the capital gains tax.
- Fees – CFD fees are charged as commission and spreads. While in spread betting, fees are already included in spreads.
- Account Types – Spread betting is mostly being offered in individual accounts while CFD has an option for corporate or individual accounts.
- Hedging – You can hedge with spread betting but it is more suitable in CFD or Forex Trading.