Justifying the risk is truly on top of the list of an investor’s priorities. However, those who are more tolerant of accompanying risks, it’s not a wonder that risk taking investors use spread betting and contracts for difference as a standard approach in their trading techniques.
On the outside, there are slight differences between spread bets and CFDs and since both are derivative instruments that mean boundless rewards or detrimental losses. Unlike traditional share trading, investors utilising derivatives will no longer need to pay for additional fees for stamp duty.
CFDs tend to be connected with real assets such as commodities and shares; spread betting on the other hand takes place in markets across a much broader range of activities on a global scale. Although, a good number of investors prefer to choose CFDs rather than spread bets mainly because of the stereotype associated with the word “bet”, still spread betting remains a popular derivative instrument in the United Kingdom.
Because of the lack of additional costs and works well as a second differentiator, spread betting proves to be a lot appealing. Long CFDs draws a daily finance cost and if left overnight will lead to a charge being added to your account. Moreover, consumers will hardly ever pay commission on spread-bets. The businesses that are being charged are normally added in the spread. Quoted prices of CFDs are ideally needed to match the underlying market so that the business will be able to charge the necessary commission for carrying out the trade.
Another differentiator is currency risk. The risks surrounding trading CFDs especially on shares or assets denominated in anything other than sterling can be really hard to alleviate. With spread betting, positions are placed on sterling and are adjusted accordingly per point so even trading with foreign currencies is no longer an issue.
Spread betting lets investors speculate on the movement of prices of several thousands of financial markets and make profits or losses based on that movement is generally and legally considered as a form of gambling which means that winnings are exempted from capital gains tax. However, with capital gains tax CFDs do come with a financial advantage of their own since CFD trades can be used to offset gains from taxes that were made from other investments in your portfolio.