CFDs vs. spread betting: What is the difference?
Spread betting and CFD trading are leveraged trading products that offer many of the same benefits.
They're similar in that they're both margined products. This means you can open a relatively large position while putting up just a small percentage of the full value of the trade.
What is spread betting?
A spread bet is a strategy in which you speculate on whether an asset’s price will rise or fall. Your stake is up to you, as you decide how much you wish to bet per point of movement. When you spread bet, you're betting on a range of possible outcomes, based on the underlying data.
Two prices are quoted for spread bets – the 'bid price' at which you can buy and the 'ask price' at which you can sell. The difference between the two is known as the 'spread'. Brokers will take a small portion of this spread as profit, without adding commission to the trade.
What is CFD trading?
A CFD is a financial derivative based on the underlying market. You buy or sell contracts which represent an amount per point in that market. This is similar to what you would do when trading the physical instrument, but without taking ownership of the underlying asset.
As this is a margined product, you can open a relatively large position using a small amount of capital and therefore can win or lose significantly more than you deposit initially.
Similarities between spread betting and CFD trading
Both products allow you to position at any time of day on rising and falling markets, with prices based on the underlying market.
Both products enable you to open positions and gain market exposure with leverage and therefore a smaller margin requirement.
Both provide opportunities to go long or short, on a broad range of markets including forex, indices, stocks and commodities.
You don't need to own the underlying asset, so you don't pay stamp duty.
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Differences between spread betting and CFD trading
| Feature | Spread betting | CFDs |
|---|---|---|
| Tax-efficiency | No stamp duty, No Capital Gains Tax (CGT) in the UK* | No stamp duty, Capital Gains Tax (CGT) liable |
| Our charges | No commission, just our spread | Commission charged only on CFD equity trades. Razor account - raw spread with commission. Standard account - no commission. |
| Other charges | Spread is built into prices, Holding costs may apply | Holding costs may apply |
| Deal sizes | Pounds per point | Number of contracts |
| Calculating profit and loss | The difference between your entry and exit price, multiplied by your stake | The difference between your entry and exit price, multiplied by the number of CFDs, multiplied by the size of the contract |
| Corporate account available | Yes | Yes |
| Currency deal size | All in £, limiting foreign currency exposure risk | In the currency of the CFD |
*In the UK spread betting profits are exempt from capital gains tax. Please be aware that tax treatment depends on your individual circumstances and tax law may be subject to change.