Among the most popular ways to trade shares, forex, commodities, and more, spread betting and CFDs are two of the most popular trade methods. Even though these two types of trading share a lot in common, you also need to be aware of some important differences.
Throughout this guide, we will explain how spread betting vs. CFD trading works and help you decide which one is ideal for you.
75.26% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
67% of retail investor accounts lose money when trading CFDs with this provider.
In This Guide
Here is a quick look at some of the key differences between spread betting and CFD trading:
Apart from the obvious differences, spread betting and CFD (contract for difference) trading share many similarities. Here is how CFDs and spread betting stack up against each other:
Spread betting and contract for difference trading are two types of derivative products that may be used to speculate on the price movement of underlying assets. It is possible to use shares, ETFs, forex, commodities, indices, and more as the underlying asset whenever you deal with derivatives; it is important to keep in mind that none give you ownership rights over their underlying assets.
It is possible to take a long or a short position when trading CFDs or spread betting. It means that you can make money by either betting on the price of an asset to rise (long position) or bet on the price to fall (short position). To compute your profit or loss, subtract the asset price when you closed the trade from the price of the asset when you opened it, then multiply that amount by the amount of money you invested.
Additionally, if you choose to use CFDs or spread betting, you will have the ability to leverage your trades. There are different maximum leverages for different assets, and the maximum leverage for each asset is decided by your broker based on the risk involved. If you are trading CFDs or spread betting, you may or may not customize the margin that you use. That is dependent on the broker you are using.
It is important to remember that there can be nuanced differences between spread betting and CFD trading even within those broad strokes.
If you are trading CFDs, you open a contract with your CFD provider or broker. To open or close the contract, you might have to pay a commission, and if you hold the position overnight, then there may also be a swap fee that increases the cost of the position.
A very important aspect of CFD contracts is that they can be transferred between traders. Therefore, they are traded on the open market, and many brokers provide direct market access to their clients. Consequently, this increases transparency in the CFD market and increases the value of fast trade execution speeds.
Similar to CFD trading, spread betting involves opening a position with a broker. However, a spread bet is never subject to a commission.
Spread bets cannot be transferred between traders, so they must be traded directly with your brokerage. Furthermore, spread bets expire after a certain period. If the bet has not already been closed, it can be closed at any time before the expiration date. If the bet has not yet been closed, it will automatically close.
There is one major difference between spread betting and CFD trading, and that is how profits from these two types of derivatives are taxed.
Despite being regulated by the FSA in the UK, the US consider spread betting to be internet gambling which is forbidden. It is also worth noting that all income in the USA is taxable (including gambling winnings).
To take an example. In the UK and Ireland, stamp duty is not payable in either of these transactions because the trader never owns the underlying asset. On the other hand, CFD trading is subject to capital gains tax (CGT), whereas spread betting is not.
Having said that, if you make a profit from CFD trading, you will be responsible for paying capital gains tax on those profits. However, you can use losses from CFD trades that you suffer from offsetting profits from other CFD trades or trades with other financial instruments. For example, there is no tax on profits from spread betting, but the losses from spread betting cannot be used to offset profits from CFD trading or other types of investments.
One of how CFDs differ from spread betting is the fees you have to pay to trade them. Spread bets do not have to pay commissions when you trade CFDs, while you might have to pay a transaction fee if you trade CFDs. One good news is that many CFD providers now offer commission-free trading to their clients.
Either you will have to pay a spread if you are trading CFDs or spread betting. That is the difference between the bid and the price of the underlying asset you are trading around. Spreads vary from one asset to another based on the liquidity of the market and the type of asset.
It is important to remember that you must purchase CFDs in the currency corresponding to the forex pair you intend to trade when using CFDs to trade forex. If you trade forex pairs in a currency other than GBP or USD, your broker may charge you a currency conversion fee.
It is possible to open spread bets on forex pairs in any currency, so you do not have to worry about dealing with currency exchange fees when opening spread bets.
Furthermore, CFDs differ from spread bets in terms of their expiration dates.
There is no expiration date associated with CFD contracts. As a general rule, contracts are set up for one month at a time, but your broker will automatically convert your position into a new one before the old one expires. So if your position is losing money, you can keep it open for as long as you want (even if you have to pay holding fees and even if you have to pay higher margin requirements).
Conversely, spread bets have a defined expiration date, whereas futures bets do not. In general, there are two types of spread bets: those that expire at the end of the trading day and those that expire every quarter. If your broker allows you to roll over a spread bet into a new contract, you may be able to do so, depending on the broker. In any case, it is important to remember that if you do not roll your contract over when your contract expires, your bet will automatically expire as well.
There are two types of spread betting and CFD trading regulated by the Financial Conduct Authority (FCA). It is responsible for setting rules that govern how brokers can issue leveraged financial products to retail investors, and it is the UK’s primary financial watchdog.
It is important to remember that spread betting is only allowed in the United Kingdom and Ireland if you are based out of the United States and looking for tax-efficient trading tools, you might want to consider a spread betting platform. Keep in mind that spread betting is illegal in the United States at the moment, so this might be something you ought to take into consideration. Because of this, US residents cannot open spread betting accounts with most spread betting companies in the UK; however, they can trade Contract for Difference (CFDs).
On the other hand, CFD trading can be done worldwide. Therefore, all brokers offering spread betting are regulated by the Financial Conduct Authority (FCA). However, foreign authorities may regulate some brokers that offer CFD trading, such as the Cyprus Securities and Exchange Commission (CySEC).
There is one important thing that investors need to be aware of, and that is the fact that you cannot trade cryptocurrencies through CFDs or spread betting. According to the FCA, cryptocurrency derivatives, such as CFDs and spread betting, are now banned.
Investing in spread betting and CFD trading has advantages and disadvantages relevant to both.
Pros:
Cons:
Do you want to start trading using spread betting? Here is a closer look at two of the most popular spread betting platforms available on the market today:
We find Capital.com to be the best spread betting platform overall. More than 3,000 financial markets are available through this broker, including thousands of shares, 140 forex pairs, and dozens of commodities.
Capital.com offers spread betting with a minimum deposit of just £20. In addition to a demo account where you can practice spread betting risk-free, the broker offers a wide range of educational tools to help you get started. Additionally, the broker offers videos and tutorials that walk you through popular trading strategies.
The best part about spread betting on Capital.com is that this platform comes with tools to help you continually improve your trading. Trade tracking software that AI powers identify patterns in which you are winning and losing trades. This software will automatically suggest ways to take advantage of the spread betting strategies and trading patterns that have been working for you.
The Capital.com platform for technical analysis is available for mobile devices and the web. A news feed and economic calendar are also available, along with dozens of technical studies and drawing tools. Price alerts are also available in the mobile app so that you can stay one step ahead of the market.
The FCA regulates Capital.com. The broker stands out from the crowd for providing negative balance protection with all spread betting accounts. That means that even when trading margined products, you will not be able to lose more than your initial deposit. Furthermore, Capital.com offers 24/7 customer support by telephone, email, and live chat through its website.
76.25% of retail investor accounts lose money when trading CFDs with this provider.
The Pepperstone Spread Betting Broker is a comprehensive spread betting broker perfect for beginners and seasoned traders. It is worth noting that the broker sets itself apart from its competitors by offering a variety of trading platforms. These include MetaTrader 4, MetaTrader 5, and cTrader.
All three platforms make it possible for you to create your custom technical indicators and backtest strategies so that you can analyze your trading strategy in-depth. In addition to these features, the MetaTrader and cTrader platforms are designed to help you manage risk and give you access to advanced order types and other tools for managing your trades.
Furthermore, Pepperstone offers social trading through MetaTrader 4 and Myfxbook in addition to traditional online trading. The social trading platforms you'll find on these sites can be extremely helpful for connecting with spread bettors and learning new trading strategies, especially if you're interested in trading forex.
The range of markets that Pepperstone offers is somewhat limited, especially compared to Capital.com. The broker offers over 180 financial instruments, including more than 60 forex pairs and more than 60 stocks from the United States. It is one of the most affordable spread betting platforms as it offers extremely low spreads and leverage of up to 30:1 on the major forex pairs.
There is no negative balance protection for all accounts with Pepperstone because FCA regulates it. Support can be found via phone, email, or live chat 24 hours a day.
When choosing the best CFD trading platform, you will have many options available to you. If you think CFDs are a good fit for you, there are a lot of choices. Let's take a look at our top two recommendations:
eToro is the best choice for traders looking for a CFD provider. With this broker, you can trade more than 2,000 shares from exchanges worldwide, including in the UK, Australia, the US, Europe, Hong Kong, and South Africa. Furthermore, eToro offers CFDs on more than 40 currency pairs and 25 commodities popular with investors.
It is an advantage for traders looking to keep costs down to know that CFD trading with eToro is 100% commission-free. There is no doubt that the broker's spreads are in line with the industry average for most assets. There is a small withdrawal and inactivity fee associated with eToro, but these can easily be avoided.
With eToro, you have the choice of both a web-based trading platform and a mobile app. As part of the platform, you will find over 100 technical studies and drawing tools, as well as a market news feed and an economic calendar. Moreover, you can also see whether other traders on eToro are buying or selling an asset, making it easy for you to spot any changes in momentum.
We believe that eToro's most attractive feature is its social trading platform, where you will find tens of thousands of other CFD traders from all over the world. You can share trading ideas, success stories, and strategies with other traders with this platform. eToro also supports copy trading, so you can copy the portfolios of professional CFD traders and mimic their performance with just a few clicks.
eToro is regulated by the UK's Financial Conduct Authority (FCA) and is widely acknowledged as trustworthy. In addition, almost all trading accounts are protected by the Financial Services Compensation Scheme for a maximum of 8.5 million pounds. eToro offers 24-hour customer support by phone and email, seven days a week.
There are several top CFD trading platforms, and one of them is Libertex. The unique feature of this broker is its low-cost pricing structure, which eliminates spreads from your CFD trades.
Libertex compensates for this by charging small commissions as low as 0.008%, below the average for forex trading in the UK. But, of course, there is nothing better than knowing how much your trade will cost you upfront since the commissions are fixed for each asset.
Despite Libertex's hand-picked portfolio of assets not being the largest in the market, most traders will find plenty to focus on. This CFD broker offers around 80 of the most popular US stocks, as well as more than 50 currency pairs. Besides stocks, indices, and commodities, you can also trade CFDs on a range of stock indices and commodities with this broker.
There are 2 trading platforms that Libertex offers: its custom Libertex platform and the popular MetaTrader 4 platform. Both platforms can be accessed from a web browser and mobile devices. The thing we like most about Libertex's custom platform is that it's flexible and includes a market sentiment gauge to help you track the changes in an asset's price momentum. Also, it offers a variety of order types for risk management and a market news feed built into the software.
A firm like Libertex is regulated by the Cyprus Securities and Exchange Commission (CYSEC), based in Cyprus. Therefore, customer support is only available by email at Libertex.
The spread betting and CFD markets are financial derivatives that can speculate on the future price of an asset without actually owning it.
If you choose between spread betting and CFD trading, it is important to understand the differences between the two. Spread betting has the advantage of being free of capital gains tax, unlike CFD trading, which is subject to capital gains tax. On the other hand, CFD trading is also available overseas, and CFD contracts aren't subject to expiration.
We recommend Capital.com to those ready to get started with spread betting. However, we recommend eToro as an excellent place to start for those interested in trading CFDs.
71.2% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.
CFD trading and spread betting both use leveraged derivatives to let you speculate on the price of an underlying asset without actually owning it. Nevertheless, they are different forms of trading, and they have different tax implications and fees associated with them.
eToro, for example, offers 100% commission-free CFDs. In addition, spread betting is always commission-free at brokers that offer it.
Depending on the asset you choose, you may be able to choose how much leverage to use. In addition, your broker may be able to let you adjust the leverage you use.
Direct market access means that your trade is passed directly to the market for execution without being reviewed by the broker's in-house trading office first. Consequently, your trade is executed faster and more transparently. However, direct market access is only available for CFD trading, not spread betting.
Spread betting is currently not legal in the United States. In addition, US citizens generally cannot open spread betting accounts with most spread betting companies in the UK. Still, they may open contracts for difference (or CFD) accounts.
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