The Differences Between Spread Betting and CFDs
When you first look at CFDs, it is understandable to believe that they are the same thing as spread bets. They do have quite a few similarities. For example, neither spread bets nor CFDs will require payment of a stamp duty. In addition, the trader does not actually own the shares being traded. This means that they have no voting rights with either of these types of margin trading.
However, there are some key differences, and it is important take note of those differences so you can better determine which one will work the best for your trading and investment needs.
How Do They Differ?
When you are using spread bets, you do not need to pay a commission. If you are using CFDs, you will need to pay a commission. It's a good idea to speak with your broker about any of the fees that using either of these two methods will incur. This will help you plan your investments and trades better, as you will know the overall costs.
If you are spread betting, you will not have to worry about the capital gains tax, as it is exempt. CFD trades on the other hand, are not exempt from the capital gains tax.
One of the nice things about CFDs is that they often act like assets, even though the trader doesn't own any part of the asset. For example, when dividends are paid through a company, the trader could actually receive those dividends. This is not the case with those who are using spread bets for the margin.
Spread bets have a "fixed ownership". This means that they will have to incur costs if they want to keep the bet and roll it over. The periods for the CFD are actually far more flexible. This allows the traders to use shorter or longer term contracts based on their needs.
Which Is Right for You?
It's impossible to say which one is right for you, as every investor is different and has a different plan and goals. You have to think about what you want from your trades, the amount you can risk and the goals that you want to reach. Then, you can make your trades using the vehicle that will most closely align with those goals.
As you can see, at first blush, there are some remarkable similarities between the two types of trades. It's only when you dig a little deeper that you see the differences. Both have some great benefits to offer, but you will need to find the one that really works for your needs. You can speak with a financial services specialist to help you choose if you are having trouble.