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Spread Betting versus CFDs

Posted By Robert On Friday, December 20th, 2013 With 0 Comments

Advantages of Spread Betting

Spread Betting offers many advantages over traditional share trading and investing, including:

  • Profits free from Capital Gains Tax and Stamp Duty
    The profits you make from spread betting are currently exempt from Capital Gains Tax (CGT) and Stamp Duty in the UK. However, tax treatment depends on your individual circumstances and tax laws can change or may differ in a jurisdiction other than the UK.
  • Go long or short on a multitude of global financial markets
    Not only can you go long (buy) any share, index, currency or commodity on our platform, but you can also sell them short, allowing you to profit from falling as well as rising markets. This can be beneficial if you are worried about the value of your share portfolio falling – if you sell the shares short via a spread betting account and they fall in value, you gain on the spread bet, offsetting what you lose on your physical share holding.
  • No commissions or hidden charges
    All our dealing charges are included in the spread – there are no hidden extra costs or dealing commissions. Unlike our competitors, we do not charge you to roll an equity or index short position overnight, and our long overnight rolling charges are amongst the lowest around and are clearly displayed in your statements.
  • Low Margins and Tight Spreads make your money go further
    When you spread bet you are trading on margin – what this means is that you only have to put up a small percentage of the value of the product you are trading. This allows you to utilise less capital compared to traditional methods of trading. For example, if you wanted to buy 5,000 shares of BP at £4.00 per share you would need £20,000 to purchase those shares. When you spread bet on equities you place a 5% margin, meaning you would only need an initial investment of £1,000 to get the same exposure.
  • No Currency Risk
    You can choose to open your trading account in your preferred currency from a choice of Sterling, US dollars or Euros. You can trade all international markets in your preferred currency and you do not have to worry about costly foreign exchange conversion rates.

Advantages of CFDs

Trading CFDs offers many advantages over traditional share trading and investing, including:

  • Transactions free from Stamp Duty – There is no stamp duty on equity CFD transactions, which makes trading CFDs a cheaper way to gain exposure to equities than trading physical shares*.
  • Go long or short on a multitude of global financial markets
    Not only can you go long (buy) any share, index, currency or commodity on our platform, but you can also sell them short, allowing you to profit from falling as well as rising markets. This can be beneficial if you are worried about the value of your share portfolio falling – if you sell the shares short via a Contract for Difference, and they fall in value, you gain on the CFD, offsetting what you lose on your physical share holding.
  • No commissions or hidden charges – All our dealing charges are included in the spread – there are no hidden extra costs or dealing commissions. Unlike our competitors, we currently do not charge you to roll an equity or index short position overnight, and our long overnight rolling charges are amongst the lowest around and are clearly displayed in your statements.
  • Low Margins and Tight Spreads make your money go further – When you trade CFDs you are trading on margin –this means that you only have to put up a small percentage of the value of the product you are trading. This allows you to utilise less capital compared to traditional methods of trading. For example, if you wanted to buy 5,000 shares of BP at £4.00 per share you would need £20,000 to purchase those shares. When you trade equities via a CFD you place a 5% margin, meaning you would only need an initial investment of £1,000 to get the same exposure.
  • Deal in large or small amounts – Unlike trading physical shares, when trading CFDs with a CFD broker you can trade as little as one share, one index unit or 10,000 base currency units for FX.
  • Instant execution of trades – When trading CFDs with a CFD broker, your trade will be confirmed as soon as you hit the buy / sell button (this is subject to the deal or order size being within permitted limits).

*Please note: tax treatment may depend on individuals circumstances and tax laws may be subject to change.

Here we aim to shed some light on how financial spread betting and CFD (Contract for difference) trading work.

Spread Betting Vs CFDs

The key similarities:

  • No stamp duty is paid on transactions
  • You do not own the shares or underlying security and you have no voting rights.
  • Margin trading is used to leverage up your capital.
  • You can trade thousands of markets and go long or short with both.

The key differences:

  • Spread betting is exempt from Capital Gains Tax, CFD trading is not. Tax laws are subject to change though and tax treatment may depend on the individual.
  • Losses on CFDs can be offset against capital gains, this is not allowed with spread bets
  • When trading CFDs, you trade in a similar manner to purchasing shares – i.e. you buy 10,000 shares of BP. With spread betting you trade in pounds per point (or dollars/euros) – so for 10,000 shares in BP you would instead stake £100 per point movement in the share price. If BP goes up by 10p, your 10,000 shares makes £1,000, as does your spread bet.

 

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