CFD Trading and Spread Betting are similar in some ways and yet some traders prefer the one over the other. Both Spread betting and trading CFD must not be interchanged as it may incur losses. This is the reason why you need to know and understand its similarities and differences.
Similarities of Spread Betting and Trading CFD
Both Spread betting and trading CFD are referred to as derivatives. They are also traded through a broker. However, understanding the derivative gives you an edge and can help you create mistakes that will result in the loss of money while in the trading market.
You won’t be owning the underlying asset
This financial security has a value that is derived coming from a fundamental asset. To say it simply, you are not going to own those underlying assets under the spread betting and trading CFD. The one thing that you can have is the contract between your broker wherein you can buy or sell your assets with your preferred price.
For instance, if you happen to spread bet some gold, you aren’t going to actually own the gold or either be allowed to withdraw the gold from your trading broker. The only thing you can do is to speculate on the price. You had an agreement with your broker, making them the ones responsible for the transaction risks.
No pay stamp needed
Not owning the asset means that you also do not have to pay stamp duty under spread betting and trading CFD. This is what makes derivatives great and appealing. Tax laws defer from the country you live in. It is advisable to consult an accountant regarding this matter.
Choose from several Tradeable instruments
Here are the instruments that you can use for spread betting and trading CFDs:
You can choose to go short or long
Both trading CFD and spread betting have the same principles of trading. You can either buy a short currency or opt to go long while holding a currency for some time before you sell it. These tactics are loved by day traders and swing traders.
They have overnight charges
If you choose to hold a position for several days, you will have to shoulder the expensive swap fees resulting in a reduced end profit.
Differences in CFD Trading and Spread Betting
Spread betting is mostly offered by Ireland and UK brokers while Trading CFD is offered worldwide
Spread betting started in the USA in 1940 and invented by Charles K. McNeil. However, the USA banned it as well as most countries around the world except the UK and Ireland. That being said, Trading CFD is widely used all across the world, even in the UK and Ireland where spread betting is widely used.
No tax for Spread betting in UK and Ireland while taxes must be paid for CFDs
Spread betting is not taxable in the UK as it is viewed as a form of gambling. But in Australia, spread betting is considered legal but taxes are still collected from it. As for CFDs, taxes are paid for capital gains.
CFDs don’t have expiry dates while spread betting usually expires up to a month.
Commissions on CFDs
CFDs usually charge commissions while spread betting do not.