1Tax treatment depends on individual circumstances and may be subject to change in the future.
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Spread betting vs CFD trading: key differences explained
Spread betting and contracts for difference (CFDs) are both leveraged derivative products that let you speculate on financial markets without owning the underlying asset. However, they are not the same. The main differences between spread betting and CFD trading are tax treatment, regional availability, how positions are sized, how costs may apply and whether currency conversion can affect your profit or loss.
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For many UK and Ireland-based clients, spread betting is often compared with CFDs because both products provide leveraged exposure to markets such as indices, forex, shares, commodities and ETFs. Both can be used to speculate on rising and falling prices, and both involve a high level of risk because leverage can magnify losses as well as profits.
This guide compares spread betting vs CFDs, explains how each product works in practice and highlights the points to consider before deciding whether either product is appropriate for you.
Spread betting vs CFDs briefly
Feature | Spread betting | CFD trading |
|---|---|---|
Product type | Derivative product based on price movement | Derivative contract based on price movement |
Ownership of underlying asset | No ownership of the underlying asset | No ownership of the underlying asset |
Profit and loss calculation | Based on stake size per point of movement | Based on number of CFD units and price movement |
Tax treatment | Profits are generally free from capital gains tax and stamp duty in the UK and Ireland¹ | No stamp duty, but profits are generally subject to capital gains tax¹ |
Loss treatment | Losses generally cannot be offset against capital gains | Losses may be offset against capital gains, depending on individual circumstances¹ |
Availability | Available only to customers who reside in the UK or Ireland | Available to customers in many countries |
Currency exposure | Placed in your local currency | Traded in the currency of the underlying market, which may create FX risk |
Commission | Commission-free, with an additional spread payable on shares and ETFs | Commission-free, apart from share and ETF CFDs |
Leverage | Leveraged, so losses and profits are amplified | Leveraged, so losses and profits are amplified |
Typical use | Short-term market speculation in the UK and Ireland | Short-term market speculation in the UK and many other countries |
¹ Tax treatment depends on individual circumstances and may be subject to change in the future.
What spread betting and CFD trading have in common
Spread bets and CFDs are financial derivatives. Their value is derived from the price of an underlying market, such as an index, share, ETF, forex pair or commodity. When you use either product, you do not buy or own the underlying asset.
With both products, you can take a position on rising or falling prices. You ‘buy’ or go long if you think the market will rise, and ‘sell’ or go short if you think the market will fall. Your profit or loss depends on whether the market moves in your favour or against you.
Both products are traded on margin. This means you deposit a percentage of the full notional value of the trade to open a position. Margin can make trading more capital-efficient, but it also increases risk. A relatively small market move can have a larger effect on your account because profit and loss are calculated using the full value of the position, not just the margin you deposit.
Before placing a trade, make sure you understand how margin and overnight costs work. You can review CMC Markets’ trading costs for more detail.
Main differences between spread betting and CFDs
Tax treatment
The biggest difference for many UK and Ireland-based traders is tax treatment. Spread betting profits are generally free from capital gains tax and stamp duty in the UK and Ireland. CFD profits are generally subject to capital gains tax, although CFD losses may be offset against profits for tax purposes.
Tax should not be the only reason to choose one product over another. Tax treatment depends on your individual circumstances and may change in the future. Consider seeking independent tax advice if you are unsure how either product applies to your situation.
Availability
Spread betting is available only to customers who reside in the UK or Ireland. CFDs are available in many countries, including the UK and several other major financial markets. Neither spread betting nor CFD trading is available to retail clients in every jurisdiction.
Position sizing
Spread betting uses a stake size per point of market movement. For example, if you trade £10 per point, every one-point move in the market changes your profit or loss by £10.
CFD trading uses units or contracts. Your profit or loss is based on the difference between the opening and closing price, multiplied by the number of CFD units traded.
Currency exposure
Spread bets are placed in your local currency, which means there is no currency conversion on the trade itself. CFDs are traded in the currency of the underlying market. This means your profit or loss may be affected by foreign exchange movements, and currency conversion fees may apply.
Commissions and trading costs
Both products involve the spread, which is the difference between the buy price and the sell price. Spread betting is commission-free, with an additional spread payable on shares and ETFs. CFD trading is also commission-free on many markets, but commission applies when trading share and ETF CFDs.
Holding costs may apply to both spread bets and CFDs when positions are kept open overnight. These costs can be positive or negative, depending on the market, direction of the position and applicable holding rate.
Spread betting vs CFDs: Trade example
The mechanics of a spread bet and a CFD trade can look similar when the same market, opening price and margin rate are used. The main difference is how the position size is expressed.
For this example, assume the UK 100 - Cash has the following prices and margin rate:
Sell price: 7,277
Buy price: 7,278
Spread: 1 point
Margin rate: 5%
You think the UK 100 will rise, so you open a ‘buy’ position.
Step | Spread betting | CFD trading |
|---|---|---|
Opening position | You open a position at £10 per point. | You buy 10 CFD units at the buy price. |
Margin calculation | 5% x (£10 x 7,278) = £3,639 | 5% x (10 units x 7,278) = £3,639 |
Market movement | The UK 100 rises by 25 points. | The UK 100 rises by 25 points. |
Profit calculation | 25 points x £10 = £250 | 25 points x 10 units = £250 |
In this example, the margin and gross profit are the same. The differences appear in the product structure: spread betting profit is based on stake per point, while CFD profit is based on units. Taxes, commissions, holding costs and FX exposure may also differ.
Spread betting or CFDs: Which is more appropriate?
Neither product is suitable for everyone. Both are leveraged, short-term trading products, and both can result in rapid losses. The right comparison depends on where you live, how you want to size positions, which markets you want to trade, how tax treatment applies to you and whether you understand the risks.
Spread betting may be considered by eligible customers in the UK or Ireland who want to trade in their local currency and who understand the tax treatment and risks. CFDs may be considered by traders who want access to CFD markets and are comfortable with contract-based position sizing, possible currency exposure and capital gains tax treatment.
Before using either product, consider whether you understand margin, holding costs, order types, market volatility and the possibility of losing your capital.
When spread betting may be considered
You reside in the UK or Ireland.
You want position size to be expressed as a stake per point.
You want profits to be treated under the spread betting tax framework, subject to your individual circumstances.
You prefer trades to be placed in your local currency.
You understand that losses generally cannot be offset against capital gains.
When CFD trading may be considered
You want to trade CFDs and are in a country where CFD trading is available.
You are comfortable sizing trades in CFD units or contracts.
You understand that profits are generally subject to capital gains tax in the UK.
You want the potential ability to offset CFD losses against gains, depending on your circumstances.
You understand that trades may be affected by FX movements when the underlying market is priced in another currency.
Spread betting vs CFDs: In-depth comparison
Feature | Spread betting | CFD trading |
|---|---|---|
Tax treatment | Profits are generally exempt from stamp duty and capital gains tax in the UK and Ireland.¹ | No stamp duty, but profits are generally subject to capital gains tax.¹ |
Who can trade? | Available only to customers who reside in the UK or Ireland. | Available to customers in many countries globally. |
Short selling | You can go long or short, allowing you to speculate on both rising and falling markets. | You can go long or short, allowing you to speculate on both rising and falling markets. |
Shares and ETFs | An additional spread is built into prices displayed on the platform. | Commission is charged when you execute share and ETF CFD orders, in addition to the spread. |
Holding costs | Holding costs may apply and can be positive or negative. | Holding costs may apply and can be positive or negative. |
FX risk | Trades are placed in your local currency, with no currency conversion on the trade itself. | Trades are placed in the currency of the underlying market, so FX movements and conversion fees may affect profit or loss. |
Calculating profit and loss | Difference between opening and closing price multiplied by stake size. | Difference between opening and closing price multiplied by the number of CFD units traded. |
Leverage | A leveraged product. Leverage amplifies potential profits and losses equally. | A leveraged product. Leverage amplifies potential profits and losses equally. |
Timeframe | Designed for short-term trading, from minutes to days, weeks or up to a month. | Designed for short-term trading, from minutes to days, weeks or up to a month. |
Forward contracts | Available for certain instruments. | Available for certain instruments. |
Range of markets | Around 13,000 instruments, including forex, indices, shares, ETFs, commodities, bonds and share baskets. | Around 13,000 instruments, including forex, indices, shares, ETFs, commodities, bonds and share baskets. |
Dividends | No dividends, but share or index dividend events may be reflected as a price adjustment. | No dividends, but share or index dividend events may be reflected as a price adjustment. |
Suitable for hedging | Yes. | Yes. |
Trading hours | 24/5 trading on forex and major stock indices; other instruments trade during underlying market hours, with pre-market trading on selected US stocks. | 24/5 trading on forex and major stock indices; other instruments trade during underlying market hours, with pre-market trading on selected US stocks. |
Corporate account | No. | Yes. |
Mobile app | Available for iPhone, iPad and Android™. | Available for iPhone, iPad and Android™. |
Available on MT4 | Yes. | Yes, for forex, index and commodity CFDs. |
¹ Tax treatment depends on individual circumstances and may be subject to change in the future.
Key takeaway
The main difference between spread betting and CFD trading is how the products are structured and taxed. Spread betting is available only in the UK and Ireland and uses a stake per point, while CFDs are available in more countries and use contract or unit-based position sizing. Both products are leveraged and high risk, so the decision should be based on eligibility, costs, tax treatment, currency exposure, trading objectives and whether you understand the risks involved.
Spread betting lets you bet on the price movement of a market without owning the asset. CFD trading also lets you speculate on price movements, but you trade contracts that mirror the asset’s price. Both use leverage, but CFDs are more widely available internationally.
Neither is ideal for complete beginners because both involve leverage and high risk. Spread betting may feel simpler because profits and losses are calculated per point movement, while CFDs may suit traders who want a more traditional trading structure.
In the UK, spread betting profits are usually free from capital gains tax and stamp duty. CFD profits may be subject to capital gains tax, but CFD losses may also be offset against gains. Tax rules depend on location and personal circumstances.
Spread betting often includes costs in the spread, while CFDs may involve spreads, commissions, and overnight financing charges. The cheaper option depends on the broker, market, trade size, and how long the position is held.
Both carry significant risk because leverage can magnify losses as well as gains. Key risks include market volatility, overnight price gaps, margin calls, emotional trading, and losing money quickly if risk controls are not used.
In some regulated markets, retail clients receive negative balance protection, meaning they cannot lose more than their account balance. Professional clients or traders in less regulated regions may not have the same protection.
