Spread Betting vs CFD Trading
In this article, we will show the difference between spread betting and CFD trading, as well as the major factors you need to know about when choosing CFD or spread betting products. Whether you are trading Forex, Stocks, or Indices..understanding the vehicles available to you to speculate on such markets is a critical step towards profitable trading.
What Is Spread Betting?
When spread betting, the trader is not buying or selling an asset. Instead, the trader is betting on where they expect the price of a particular market will move to. The trader is given an option to spot a bet size per point the market moves.
What Is CFD Trading?
When trading with CFDs, the trader is trading a contract based on the price of the basic market. Instead of a trader buying physical assets from their broker, or betting on the market, they can easily enter a CFD with their broker instead. The contract is to exchange the distinction in the value of an asset from the price of the contract when it is first opened, to the price when the contract is closed.
The value of a contract varies depending on the market you are trading.
Both spread betting and CFD trading allow traders to speculate on the price direction of a particular market applying leverage, thereby enabling traders to open positions with only a small deposit of the full trade size. Of course, the same also applies to losses. Traders risk losing their deposit faster when using leverage.
What Are the Main Differences Between Spread Betting and CFD Trading?
There are two specific differences between spread betting and CFDs that traders should be especially aware of.
Tax Treatment:
For UK residents, spread betting is free from stamp duty and capital gains tax. For CFD trading no stamp duty is payable but you have to pay capital gains tax. While some traders may be attracted by the lower levels of tax-related to spread betting there are some disadvantages when compared with CFD trading.
Spread bettors cannot balance any losses for tax aims. CFD traders have the power to balance any losses against future profits.
Availability
Spread betting is only available to individual residents of the UK and Ireland.
Trading Platforms
Most spread betting providers have their special trading platforms ..whereas there are many more CFD brokers who apply the world’s most common trading platform, MT.
Spread Betting vs CFD Trading
When choosing between CFDs and spread betting there are many things to take into consideration. While the tax situation may be the most obvious difference between the two, other considerations could have a bigger impact on your overall profitability.
Spread betting includes betting on the view of prices either going up or down; it cannot offer the ability to trade with banks or hedge funds and receive institutional-grade spreads. As CFDs include trading the basic market price via contracts, traders can access the ability to trade directly with banks and hedge funds to receive lower spreads and lightning-fast execution.
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