The volatility of the market is indeed one of the greatest challenges for many investors. It will require traders to have a technical background on the financial instruments that they are dealing with. Aside from that, there are still so many things that need to be understood. However, by using two (2) of the great pairs of products, one can actually gain a lot. These are the contracts for difference or CFDs and financial spread betting.
In this light, the first thing that must be done with regard to this is to compare and differentiate them. This article will be explaining both the similarities and distinctions of the CFDs and spread betting.
On the one hand, when it comes to their similarities, they are very alike functionally speaking. This is because they are both derivatives, which means their value or price is determined according the underlying assets. Aside from that, it also means that they can be traded even without physically holding the commodity or instrument being traded. The key factor here is that game is about predicting the changes in the market, whether the markets are going up or down.
Aside from that, investors engaging in either CFDs or spread betting can both make simple earnings or even hedge against possible losses by going short or buying a specific instrument. Hence, it only means that both of these provide a certain level of flexibility. Moreover, both of these are called leverage products, which means the returns on the investments can be higher many times more than the initial stake at hand.
On the other hand, when it comes to their distinctions and differences, one of the most popular factors has something to do with the costs involved for making a position in either of the two products or instruments. This is because engaging in CFDs or trading them involves commission and some other costs while the other one has no commission at all. More than that, the treatment on the taxation between spread betting and CFDs is different. Spread betting is considered as a form of gambling, which makes it exempted from stamp duties, while the other one is required of capital gains tax.