Spread Betting vs CFDs

When one sees the features of CFD Trading and Financial Spread Betting, they will tend to notice the similarities more than the differences between them. It is correct that they both use same technology and in both these there is a wide range of markets from which one can use. In spite of the similarities there are many differences between the two also.

CFDs are the ones which do not have any expiry date, and as they are a margined product a daily funding charge is levied on the account when the long position is held overnight. When the positions are opened and closed on the same day there is no interest charged on the account. And with CFDs there is an interest rebate on the short positions. But with financial spread betting there is an expiry date as the position is only open till the time the contract is expired or closed.

The CFDs are also eligible for capital gains tax whereas the gains that one gets from financial spread betting are tax free. The losses that one incurs on the spread bets are not tax deductible, whereas the losses that are incurred on the CFD trading can be offset by the profits that are made in future. The margin in CFD trading is calculated as a percentage of the exposure, whereas the margin in spread bets is calculated by multiplying the stakes by the Notional Trading Requirement.

Another point of difference between CFDs and spread betting is the way the trades in the two are placed. The reason for this is that investors of CFDs will trade a particular number of shares as are traded in the conventional trading of shares. On the other hand in spread betting the trader wagers a particular amount of money for one point in any of the given markets.

The premium on the spread bets is built into the price and the trade is done above the share price whereas in the CFD trading the holder receives a credit of the net investment and if it is short over the rate of ex dividend, gross dividend is paid. In spread betting the firm will make money after charging a bid-offer spread which is wider than the ones available in the market, whereas in CFD trading the firm will charge a fixed percentage of commission on each of the trades.