Are you torn between CFD trading and Spread betting? Are you unsure which one is more beneficial? CFD and Spread betting pose similarities especially when it comes to economic benefits with investments through indices, currencies, shares, and commodities. They have also margined products and financial derivatives. Here are some of the characteristics of CFD and spread betting that you should know.
Main Characteristics of CFD Trading and Spread Betting
One of the key differences between spread betting and CFD is taxation treatment. Also, Spread betting is widely available in Ireland and the UK while CFD is available around the world.
● Tax Efficiency
Spread betting and capital gains tax (CGT) are exempted from stamp duty just like in share trading. As for CFD, there is also no need to pay for the stamp duty considering that you do not own the underlying asset. Traders will have to pay for the capital gains tax in CFD.
● Spread trading and CFD are available in:
For Spread trading, it is only available in the UK and Ireland while CFD is available globally.
● Short Selling
Spread selling allows you to trade for long and short positions. You can go for a long position if you are expecting the market price to rise while you can go for a short position if you expect the prices to fall. With CFD, traders can go for long or short trades, with the same perception as spread selling.
● Commission charge
Spread betting charges no commission on your account. As for CFD, there is a commission charged in every order made on your account. Spread is also needed to be a pain in CFD.
● Spreads and Holding Costs
Spread is paid in spread betting, every time an order is made in spread betting. As for holding costs, it is applied in every spread bet. With CFD, spread and holding costs are paid by the trader.
● Margined Trading
Spread betting and CFD trading are both leveraged products. This means that both of them only need a small deposit of the entire value of the asset for the trader to open a position.
How Spread Betting Works
With spread betting, you choose a financial instrument and predict whether the price goes up or down. Then, you decide on the amount you bet. The amount that you will bet is called a stake. For instance, if the product price moves in your favor, the profit you will gain is calculated by multiplying the stake size into the number of points that the product moved. But if the price goes against you, the loss you will obtain is calculated the same way when you calculate your profit.
How CFD Trading Works
As for Contracts for Difference, you can purchase or sell a specific amount into the instrument (commodities, indices, currencies, and others). You don’t actually own its underlying asset and you can trade using margins. With it, you can take a position given its notional value which can be more than the amount you originally deposited.
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