Spread betting vs CFDs

Are you weighing up CFDs vs spread betting and deciding which instrument would best suit your strategy? Our guide can take you through the similarities and differences between spread betting and CFDs as well as the potential benefits and drawbacks of each. Read on to find out more.

CFDs vs spread betting: What to expect from our guide

• Is CFD trading the same as spread betting?
• What's the difference between spread betting and CFDs?
• CFDs or spread betting: What are the benefits?
• CFDs or spread betting: What are the risks?
• CFDs or spread betting: Which is best for me?
• Which markets can you trade via spread betting and CFDs?
• Can you make a potential profit via CFDs and spread betting?
• How to start trading via CFDs or spread betting with Tradu

Is CFD trading the same as spread betting?

While there are plenty of similarities between contracts for difference (CFDs)  and spread betting, they are not the same thing. There are key differences between spread betting and CFDs in terms of the fundamental mechanics of the trade, as well as how they are taxed. But before we delve deeper into those differences, let's look at the core similarities:

• Derivative forms of trading
• Can go long or short
• Trading done on leverage
• In the UK, no stamp duty payable on any profits earned
• Access to a wide range of markets

What's the difference between spread betting and CFDs?

Mechanics of the trade

One of the key differences between spread betting and CFDs is the way the trades are executed. A CFD is an agreement between a buyer and a seller to exchange the difference in an asset's value between the point the contract is opened and when it is closed. Find out more about how CFDs work, including examples, in our comprehensive guide to CFDs.

Spread betting also involves speculating on the future performance of an asset. But you are staking capital per point of price movement rather than on the difference in price between the position opening and closing. Find out more about how spread betting works, including examples, in our comprehensive guide to spread betting.

Tax implications

The tax rules and regulations will vary depending on your location. For example, in the UK there is no stamp duty to pay on profits made from CFDs or spread betting. There is also no capital gains tax (CGT) to pay when trading via spread bets.

However, CGT is payable on CFDs, but this can be used to your advantage as any losses can be offset for tax purposes. Find out more in our guide to tax on CFDs and spread betting.

CFDs or spread betting: What are the benefits?

CFDs and spread betting offer plenty of potential advantages, and they have a number of those in common:

• Both are derivative forms of trading, which means there is no ownership of the underlying asset.
• You can go long or short in your position, which presents opportunities for hedging and reducing your level of risk.
• Trading is done on leverage, offering exposure to larger positions while only committing a percentage of the required capital.
• For traders in the UK, there is no stamp duty payable on any profits earned.
• Both offer access to a wide range of markets, some of which can be traded 24 hours a day.

CFDs or spread betting: What are the risks?

Of course, no form of trading comes without inherent risks. There are no guarantees with either CFDs or spread betting and there are various considerations for you to take into account:

• Both are leveraged products, which means if the market moves against you, your losses will be magnified and won't be limited to the deposit amount you put down.
• There could be additional costs for you to factor in. This is likely to apply if you want to hold your position overnight, for example.
• When it comes to spread betting, you cannot offset your losses for tax purposes because there is no CGT to pay. This is something you can do with CFDs.

CFDs or spread betting: Which is best for me?

Both forms of trading offer pros and cons while providing a route into multiple markets, which can be an effective method of diversifying your portfolio. With so many core similarities, you need to decide which is best for you.

Reasons why spread betting could be most suitable

• No stamp duty or CGT to pay on profits in the UK
• The costs of trading are typically included within the spread, with no commission

Reasons why CFDs could be most suitable

• The ability to offset your losses as a tax deduction
• Flexibility to leave positions open as long as you wish
• Mirrors the underlying markets more closely
• Can be used as a more effective tool for hedging

Which markets can you trade via spread betting and CFDs?

Whether you choose CFDs or spread betting – or a combination of the two – you'll be able to gain access to a variety of asset classes. These include:

• Forex
• Shares
• Indices
• Commodities

Can you make a potential profit via CFDs and spread betting?

Yes, if your prediction proves correct and the market moves in the direction you expect, you will stand to make a profit on your trade. There may be commission fees, CGT or other charges to deduct from those profits, but those ought to be factored in to your planning before you open a position.

And it's important to remember that although you can make money through CFDs or spread betting, there's always a risk that you can make a loss too. Both are leveraged forms of trading, so you will only put up a proportion of the capital required to open a position. But if your trade is unsuccessful, your exposure will be for the full position, not just the margin amount, so your losses can be magnified.

How to start trading via CFDs or spread betting with Tradu

You can access a range of markets via CFDs or spread betting when you open an account with Tradu. With our proprietary trading platform, you'll benefit from a comprehensive suite of industry-leading analytical tools that will help you build your portfolio while making well-informed decisions.

Choose your asset, decide whether to go long or short, and commit the amount of capital that befits your strategy. Ready to get started? You can open your account with Tradu today.