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 with UK residents 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. See below for some of the main characteristics of spread betting and CFD trading.
|Feature||Spread betting||CFD trading|
|Tax-efficient trading||Unlike share trading, profits made from spread betting are exempt from stamp duty and capital gains tax (CGT) in the UK*.||Since you don't own the underlying asset when trading CFDs, there is no stamp duty to pay*. However, you will be subject to capital gains tax.|
|Who can spread bet and trade CFDs?||Only available to customers who reside in the UK or Ireland.||Available to customers globally.|
|Short selling||You can go long as well as short so you can take a long position when market prices are rising or open a short position when prices are falling.||Ability to go long as well as short so you can take a long position when market prices are rising or open a short position when prices are falling.|
|Commission charge||When spread betting shares on our platform, no additional commission will be charged to your account.||When trading shares on our platform, a CFD commission will be charged to your account upon execution of any order. This is in addition to the spread.|
|Spreads and holding costs||An additional spread is built into the prices displayed on our platform, which is applicable upon execution of any order. Holding costs may apply to spread bets.||With CFDs, holding costs may apply.|
|Calculating profit and loss||To calculate your profit or loss, find the difference between the price at which you enter and the price at which you exit, then multiply this difference by your stake.||With CFDs, your profit or loss is determined by the difference between the price at which you enter and the price at which you exit, multiplied by the number of CFD units.|
|Margined trading**||Spread betting is a financial leveraged product, which means you only need to deposit a small percentage of the full value of the spread bet in order to open a position.||CFDs are a leveraged product, which means that you only need to deposit a small percentage of the full value of the trade in order to open a position.|
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.
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.**
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What is the spread in a CFD?
In CFD trading, the spread is the difference between the buy (bid) and sell (ask) price that is quoted for a financial instrument. The buy price is higher than the sell price, and the spread will fluctuate depending on market conditions. Read more about calculating the bid-ask spread.
Can you trade spread bets or CFDs without leverage?
Our platform requires clients to trade with leverage. However, the minimum margin rate is different for each individual instrument, so please check our markets page for more information. If you’re worried about the risks of leverage, we recommend that you use our risk management and execution tools when opening a position. Open a demo account to practise trading on margin.
Are spread betting and CFD trading tax-free?
Spread betting on thousands of instruments is tax-free in the UK and Ireland, and both spread betting and trading contracts for difference (CFDs) are exempt from stamp duty, as you do not own the underlying asset. However, you must pay capital gains tax on your profits when trading CFDs. Please note that tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK. Read more about our CFD costs.
Does leverage work the same for spread bets and CFDs?
Trading with leverage works in the same way for spread bets and CFDs. A trader is only required to deposit a fraction of the full value trade in order to gain exposure to the markets. Remember that profits and losses are magnified equally and reflect the full value of the trade. Open an account now to start trading with leverage.
Can you spread bet internationally?
Spread betting is only available for customers in the UK and Ireland, where you can trade tax-free. However, contracts for difference (CFDs) are available to trade internationally, where you will have the same exposure to the markets through the use of leverage. Read about the risks of CFDs.
*Tax treatment depends on your individual circumstances. Tax law can change or may differ in a jurisdiction other than the UK.
**Remember: when trading on margin, the amount you will be required to deposit reflects a percentage of the full value of the position. This means that your losses will be amplified and you could lose all of your capital. Trading using margin is not necessarily for everyone and you should ensure you understand the risks of spread betting and CFDs. If necessary, seek independent professional advice before placing any trades.
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