Spread Betting vs CFD – Key Differences
In the field of trading, two very similar names are Spread Betting and CFD (Contract For Difference). They as look-alike trading opportunities have a similarity of having high leverages. They are also ways to get high returns from the market. But despite having some great similarities, they are different on some solid grounds/points which we will try to discuss in our writing. Because of some strong resemblances, spread betting is often described as a bit more than gambling. The main reason for this is the connection with underlying market prices.
- On the other hand, CFDs are more widely traded based on the underlying prices.
- Spread betting is often considered an extra market transaction, where CFDs are seen as a part of the market. CFDs are considered more as a financial transaction than financial spread betting.
- In the market, spread betting is often shown with buy and sell prices with the profit from the differences between the market price of the closing time and price of the position acquiring time but when it comes to losses, spread betting brings huge losses too, where CFDs often provide good returns for good strategic trading.
- Spread betting, on some nodes, is much more tax-efficient than CFDs with almost the same return. Being treated with the texture of gambling activity, spread trading often gets traders relief from Capital Gains Tax and Stamp Duty. CFDs remain a bit behind on this point.
- Spread betting charges no commission for its charges, unlike CFDs who charge at a percentage of the total transaction cost. Therefore spread betting turns out to be cheaper than CFDs in most cases.
- Spread betting always deals in your base currency and every transaction takes place in the same currency. On the contrary, CFDs deal in the relevant base currency of the buying/selling market. This causes trouble to the traders due to currency fluctuations.
- To maintain the no commission thing, spread trading has to go much wider than CFDs. And this makes it harder for the trader to deal with the differences in the case of both longer and shorter positions.
- The daily settlement of spread betting makes it harder for the trader to have long positions, where CFDs are much easier to hold positions if you can bear the overnight financing costs.
- As CFDs are dealt with based on tracking the future, it becomes easier to see the sources of its prices. Spread betting is harder on this point to track.