CFD vs Spread Betting: What Are the Differences? (2024 Guide)

Spread betting allows a trader to speculate whether an asset's price will rise or fall. The bets can expire as early as one day or last for months.

Contracts for difference (CFD) trading closely resembles traditional trading in that you are trying to make a profit from the price difference between the opening and closing of trades in an underlying market.

The contracts expire when you sell them. While both are leveraged derivatives that allow you to enter a market with a smaller investment, they do have several differences that will determine how and when you use them.

Spread betting and contracts for difference trading (CFD) are two leveraged trading options that allow you to take a position on rising or falling markets without having the complications or burden of owning that particular asset.

While the two are very similar, most experienced traders and investors consider them to be quite different when it comes to their trading strategies.

As some investment situations suit one more than the other, knowing the difference between spread betting and CFDs is essential if you want to be a successful trader and not lose money.

A list of the Top Spread Betting and CFD Brokers for October 2024:

1. Pepperstone
2. Spreadex
3. eToro
4. AvaTrade
5. IG
6. XTB
7. ActivTrades

Description of the Best Spread Betting Brokers for October 2024

Best for: Low fees and high-speed trading

Having launched in 2010, Pepperstone is a relatively new broker compared to the others we have listed so far. However, it has grown exponentially over the past 10 years to become a reputable, popular broker.

With over 400,000 clients globally, Pepperstone has firms all over the world and has won several different awards and accolades for its training and educational resources.

It was awarded 'Best spread betting and CFD education tools' by ADVFN International Financial Awards.

Pepperstone is known for its low trading fees and is regulated by the FCA, Australian Securities and Investments Commission (ASIC), and other regulatory bodies – all listed on its website.

It uses some of the best trading platforms available, such as TradingView, MetaTrader 4, MetaTrader 5 and cTrader, available on mobile, tablet and desktop.

Pepperstone also provides access to raw spreads, offers a super-execution, trades over 1,200+ instruments and is financially transparent.

Spreadex is recognized as one of the top brokers in the UK for spread betting and CFD trading, combining user-friendly technology, a wide range of markets, and excellent customer service.

Spreadex offers an extensive range of markets for both spread betting and CFDs, including forex, indices, shares, commodities, and bonds. This broad market access allows traders to diversify their portfolios within a single platform, leveraging opportunities in various asset classes depending on their trading strategies and market conditions.

The Spreadex trading platform is designed with both novice and experienced traders in mind. It offers a seamless trading experience with an intuitive interface, easy navigation, and quick access to market data and trading tools. The platform is available on web and mobile applications, ensuring traders can manage their positions and monitor markets efficiently from anywhere.

Spreadex integrates powerful trading tools and features, such as advanced charting capabilities, a range of technical indicators, and risk management options. These tools are essential for detailed market analysis and effective trade execution, helping traders make informed decisions based on real-time data.

Spreadex is known for its personalized customer service. It offers tailored trading conditions, including competitive spreads and flexible leverage options. The broker also provides a credit facility for qualified traders, allowing them to place bets or trades beyond their immediate cash deposit (subject to a credit check and approval).

Spreadex places a strong emphasis on education and trader support. It offers an array of educational resources, including webinars, tutorial videos, and a comprehensive FAQ section. These resources are valuable for traders looking to enhance their trading knowledge and skills. Additionally, Spreadex’s customer support team is readily available to assist with any queries, offering guidance and support through various channels.

As a broker regulated by the Financial Conduct Authority (FCA), Spreadex adheres to strict regulatory standards, ensuring transparency and fairness in all its operations. This regulation provides traders with the assurance that their funds are safe and that the trading environment is secure and reliable.

Best for: Zero commission and all-round broker

eToro features include:

• Access to over 800 stocks
• No commission to pay (0% commission applies to stock investment, spreads will be applied to CFD products)
• $100 minimum deposit (eToro operates in USD only)
• Regulated by the FCA, CySEC and ASIC

The trading platform is native to eToro and has been designed with new traders in mind.

51% of retail investor accounts lose money when trading CFDs with eToro. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

AvaTrade is a CFD Regulated broker with +1,000 financial instruments and multiple trading platforms. It has been operating since 2006.

It offers a 20% welcome bonus up to $10,000, according to regulation and a free 21-day demo account with $100,000.

Instruments include:

• Metals
• Commodities
• Stocks
• FX Options
• Oil
• ETFs
• Options
• Crypto currencies
• CFDs
• Indexes
• Shares
• Spread betting
• Indices
• Forex
• Bonds

AVATrade EU Ltd is regulated by the Central Bank of Ireland. (No.C53877) Ava Trade Markets Ltd. is regulated by the B.V.I Financial Services Commission. It is also highly regulated in Australia, South Africa, Japan, Middle East, Cyprus and Israel

You can not trade with AvaTrade in the US, North Korea, New Zealand, Iran or Belgium.

Mínimum deposit of $100, no withdraw limit and no fees.

IG invented spread betting in 1974 and today is the world’s leading online trading provider with more traders trusting them with their money than anyone else

IG is authorised and regulated by the FCA and provides traders access to over 18,000 markets. IG offers more 24-hour indices than any other provider, and extended hours on over 70 key US stocks 

For those who prefer to own the underlying asset, IG offers access to over 13,000 global shares and ETFs, or a wealth portfolio managed by one of their experts. 

Benefits:

• Advanced platform and charting – L2 dealer, ProRealTime and MT4
• Demo account
• Extended trading hours
• Extensive range of products
• Daily expert analysis & educational resources
• Round-the-clock customer service
• Negative balance protection for retail clients

Based on revenue (published financial statements, October 2022). 24/7 excludes the hours from 10 pm Friday to 8 am Saturday (UK time), and 20 minutes just before the weekday market opens on Sunday night.

Best for: International trading

XTB is a trusted all-around broker, established in 2002. It is regulated by the FCA and listed on the Warsaw Stock Exchange.

There is no minimum deposit for opening an account.

XTB uses its xStation 5 platform, which offers good customisation, search functions and modern design.

As a platform, it has all the standard educational resources and research tools.

It has over 2,000 stocks, though all cryptocurrency trading is paused on weekends.

Overall, the only negatives of XTB are that its fundamental data is limited, and there are high fees for some CFD trades.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

ActivTrades is a traditional CFD broker and has been trading for more than 20 years on 140 markets. ActivTrades is authorized and regulated by the FCA, CSSF and SCB.

Its strong points include:

• No minimum first-time deposit
• No commissions
• Several payment methods for deposits and withdrawals
• Tight spreads from 0.5 pips

It offers one of the best execution speeds in the industry with low latency below 0.004s.

It utilizes the most advanced technology to improve users' trading efficiency – users can automate trades, build integrations and create trading apps using ActivTrades' market-leading CFD and spread betting technology.

Exceptional trading infrastructure is available on ActivTrader and MetaTrader 4 and 5.

ActivTrades invests deeply in specially developed educational materials for its clients – including webinars, regular outlooks, manuals, etc.

Type of offers: ActivTrades focuses on well-developed products in its trading portfolio. Customers can choose from over 1,000 CFD or spread betting instruments across forex, indices, shares, commodities, financials and ETFs.

It also offers investing solutions for its institutional partners.

Spread betting allows UK residents ONLY to trade the prices of financial instruments, including forex, indices, commodities and LSE shares.

What Is Spread Betting?

Spread betting is a trading strategy that lets you speculate whether an asset’s price will rise or fall.

Instead of buying and selling an asset, you decide your stake (pounds per point of movement) and bet whether it is long (price will increase) or short (price will decrease).

For every point that asset moves in your desired direction, you earn a profit. Every point in the opposite direction, you make a loss.

From the trading data, you speculate Tesco share prices are going to increase, and you decide to bet £30 per point long. By the time your bet expires, the share price has risen five points (equal to 5 pence). You are now £180 in profit.

In every spread bet there are two prices quoted: The first is the bid price, which is the price at which an investor ‘buys’ the asset. The second is the ask price, which is what an investor sells it for.

The difference between the two is known as the spread.

Brokers will take a small portion of the spread as profit, but they do not take any commission.

You can place a spread bet on any type of asset, including cryptocurrencies, currency pairs, stocks, commodities and indices and for any outcome.

Similar to traditional trading, you only discover your profit or loss when the bet closes.

What Is CFD Trading?

CFD trading involves trying to profit from the price difference between the opening and closing of trades.

You buy and sell a contract that follows the price movements of its underlying market, exactly as you would any normal trade.

For example, buying a CFD of British Airways is the same as buying BA stock. The difference is you do not take ownership of that asset.

To bet short, you would sell CFDs rather than buy them.

As this is a margined product, there is the chance for a relatively large position using a small amount of capital.

However, this means that investors can lose or win a large amount, regardless of the deposit amount.

CFD vs Spread Betting: What Are the Similarities?

The similarities between a spread bet and CFD are:

• As both products are leveraged, there is the potential to make large profits with a small investment. Perfect for those with a limited trading budget.
• Both spread betting and CFDs are exempt from stamp duties, as you do not physically own any assets.
• You can trade both long and short using a variety of indices, currency pairs, stocks and commodities.
• You can trade at any time of the day and week, depending on the trading platform.
• Spread betting and CFDs allow traders to enter the market and gain exposure and experience with leverage already in place.
• There are thousands of other online tools and platforms to plug into MT4 that support spread betting and CFD trading.
• Both spread betting and CFD support short, medium and long-term strategies.
• You might have to pay funding costs to hold your bets overnight.

CFD vs Spread Betting: What Are the Differences?

What is the difference between CFD and spread betting? Well, there are several. They include:

• Tax efficiency – CFD trading is liable for capital gains tax or income tax. Spread betting is exempt from all taxes.
• Contracts – With spread betting, the contract is based on pound per point. With CFD trading, your contract is based on the amount of the underlying market.
• Profit – With spread betting, the profit is calculated as the difference of buy and sell multiplied by the stake. With CFD trading, the profit is the difference between the entry and exit price, multiplied by the number of CFDs, multiplied by the size of the contract.
• Duration – There are no expiry dates in CFD trading but there are in spread betting. These expiry dates are typically far into the future, however, you can have a very short expiration of a day, if you want.
• Location – Spread betting is only available in the UK and Ireland; CFD trading is global.
• Commission – Spread betting is commission-free, while CFD brokers may take a percentage of the profit for themselves.
• Payments – CFD trading profits are paid in the currency of the underlying market. Spread betting profits are paid in GBP.

Advantages of Spread Betting vs CFDs

Here are some advantages of spread betting compared to CFDs:

Tax-Free Profits

One of the most significant advantages of spread betting is that profits are tax-free in the UK.

This means that you get to keep all the profits you make, which can be a significant advantage for those who trade frequently or generate high returns.

Easy to Understand

Spread betting is relatively easy to understand, making it accessible for novice traders.

Unlike CFDs, which can be more complex, spread betting involves placing a bet on the direction of the price movement, without owning the underlying asset.

No Minimum Investment

Spread betting doesn't require a minimum investment, so traders can start with small stakes and build up their position over time.

This can be especially advantageous for those who are just starting out or have limited funds to invest.

Fixed Spreads

Spread betting brokers typically offer fixed spreads, which means that the cost of trading is predictable and transparent.

This can help traders manage their risk and plan their trades more effectively.

No Commission

Unlike CFD trading, which involves paying a commission to the broker, spread betting typically doesn't involve any commission charges.

This can make it a more cost-effective option for traders who are looking to keep their trading costs low.

Overall, spread betting can be an attractive option for traders who are looking for a simple, tax-efficient way to speculate on the financial markets.

However, it's important to remember that spread betting, like all forms of trading, carries a high level of risk and isn't suitable for everyone.

It's important to carefully evaluate your financial situation and risk tolerance before deciding whether spread betting is right for you.

Advantages of CFDs vs Spread Betting

Here are some advantages of CFDs compared to spread betting:

Access to a Wider Range of Markets

CFD trading typically offers access to a wider range of financial markets, including shares, indices, currencies, commodities and cryptocurrencies.

This can give traders more opportunities to diversify their portfolios and take advantage of different market conditions.

Physical Ownership of Assets

CFD traders have the opportunity to own physical assets, such as shares or commodities, rather than simply placing a bet on the price movement.

This can be an advantage for those who are interested in long-term investing and want to hold onto their assets for a longer period of time.

Hedging Capabilities

CFDs offer hedging capabilities, which means that traders can offset potential losses by opening a position in the opposite direction.

This can help to minimize risk and protect against market volatility.

Corporate Trading Accounts

CFD trading can be more attractive for corporate trading accounts, as it offers greater flexibility and control over investment strategies.

Commission Rebates

Some CFD brokers offer commission rebates for high-volume traders, which can help to reduce trading costs over time.

Overall, CFDs can be an attractive option for traders who are looking for a wider range of markets and the ability to own physical assets.

However, it's important to remember that CFD trading also carries a high level of risk and isn't suitable for everyone.

It's important to carefully evaluate your financial situation and risk tolerance before deciding whether CFD trading is right for you.

Which Is Better for Me: CFD or Spread Betting?

When it comes to CFD trading vs spread betting, deciding which option to use and when comes down to research, knowledge and confidence.

Spread betting might be the better option if you:

• Prefer not to pay any tax
• Want to make your trades in GBP
• Like more control over the size of your bet
• Don’t have the budget for minimum investments and commissions
• Want the freedom to choose when your bets close

Alternatively, CFD trading might work better in situations where you:

• Want a corporate trading account
• Have the skills to hedge your trades for tax benefits
• Want physical assets in your investment portfolio
• Prefer traditional trading but don’t want ownership of the asset

The decision to choose either spread betting or CFD trading is ultimately a personal one that depends on individual preferences, financial goals and risk tolerance.

It's essential to conduct thorough research, seek professional financial advice and carefully evaluate the risks and benefits before making a decision.

Spread Betting vs CFD Trading Example

Here's an example of how spread betting and CFD trading might differ in practice:

Let's say you're interested in trading shares of a company, ABC Ltd., which is currently priced at £100 per share.

You believe that the price of ABC Ltd. will rise in the coming weeks, and you want to profit from this expected increase.

Scenario 1: Spread Betting

You decide to use spread betting to take a position on the future price of ABC Ltd. You place a spread bet with a broker, betting £10 per point that the price of ABC Ltd. will rise. The broker offers you a spread of 5 points, meaning the buy price is £100.5 and the sell price is £99.50.

A few days later, the price of ABC Ltd. has risen to £110 per share. You decide to close your spread bet, so you sell at the current price of £110.50.

Your profit would be calculated as follows:

Profit = (Closing Price – Opening Price) x Bet Size
Profit = (£110.50 – £100.50) x £10
Profit = £100

Since spread betting profits are tax-free in the UK, you would keep the full £100 profit.

Scenario 2: CFD Trading

Alternatively, you could use CFD trading to take a position on ABC Ltd. You enter into a contract with a broker to buy 100 shares of ABC Ltd. at the current price of £100 per share, with a commission of 0.1% on the transaction.

A few days later, the price of ABC Ltd. has risen to £110 per share. You decide to sell your shares at the current price of £110 per share, and the broker charges you a commission of 0.1% on the transaction.

Your profit would be calculated as follows:

Profit = (Closing Price – Opening Price) x Number of Shares – Commissions
Profit = (£110 - £100) x 100 – (2 x £0.10)
Profit = £990

However, since CFD trading profits are subject to capital gains tax in the UK, you would need to pay taxes on your profit at the appropriate rate.

This example illustrates some of the key differences between spread betting and CFD trading, such as the size of the bet or position, the commissions and taxes involved, and the way profits are calculated.

It's important to carefully evaluate these factors and consider your personal financial situation and risk tolerance before deciding which method is best for you.

Frequently Asked Questions

Final Thoughts

There really is no right or wrong when it comes to spread betting or CFD trading.

Both have tax benefits, allow you to enter a market with leverage and a small investment, and have scope for large profits.

What is the difference between cfd and spread betting? Spread betting is exempt from all taxes, while CFD trading is subject to capital gains tax. The profits are calculated differently, and only CFD trading is a global strategy. Spread betting is only sanctioned in the UK and Ireland.

Both options are not suitable for all situations. Before deciding which one to go with, consider your trading goals, location and currency you want to trade in.

WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.