Difference between Spread Betting and CFDs Trading

Spread Betting. Contracts For Difference (CFDs). At first glance they appear almost identical. You can go long or short. You never own the underlying asset, so you don’t pay stamp duty and both involve a high degree of leverage, which can magnify your returns but can amplify losses, too. Now look closer, there are some important differences. First, deal sizes. With spread betting you bet an amount of money per point, say €10 on whether a market will go up or down. However with CFDs you buy and sell contracts that represent an amount per point in the underlying market.

Tax. Spread betting profits are currently free of capital gains tax but CFDs are liable. While this may seem a major drawback, any losses can be offset against future profits for tax purposes, which makes CFDs good for hedgin

Expiry times. Spread bets tend to operate on a fixed timescale, anything from a day to several months. While CFDs generally have no expiry dates, and then there is direct market access, or DMA, this means you can trade directly into the order books of major stocks exchanges or forex providers. With a Pure Market Broker account Direct Market Access (DMA) is available. You can’t however get DMA when spread betting. When spread betting, all charges are included in the spread. So which of the two is better for you? Well if you want tax free profits, full control over the size of your deal or you want to deal shares in small sizes without having to pay a minimum commission, then spread betting could be for you. However if you want DMA on forex, a product that seems similar to trading in the underlying market or an efficient way to hedge your portfolio then you might choose CFDs.