Financial Investments: Comparing CFDs with Spread Betting

Many new and first-time investors spend countless hours wondering which form of investment for them. Should they trade forex, CFDs, spread bet or hold physical assets? This is …

Online Stock Trading

Many new and first-time investors spend countless hours wondering which form of investment for them. Should they trade forex, CFDs, spread bet or hold physical assets? This is a very valid question, with each form of trading holding its own unique challenges. To help you make a decision, we’ve put together this guide on CFDs and spread betting, where we’ll cover the pros, cons and differences of each.

CFD Trading

Pros – Leverage and Volatility

CFDs provide high leveraged swings that high risk and short-term traders desire.

Pros – Go Long or Short

Trading either long or short is simple with CFDs, which makes it a good tool for hedging in a turbulent market.

Pros – Variety

CFD trading allows you to trade on numerous markets and up to thousands of assets. You can trade on products including currencies, shares, commodities, bonds and more. So your options are never limited.

Try Gemini Today! 123

The Gemini Exchange makes it simple to research crypto market, buy bitcoin and other cryptos plus earn Up to 8.05% APY!

Cons – Leveraged Losses

Although leverage is a positive for experienced traders looking to capitalise on short term price movements, it can be deadly for inexperienced traders. Losses can become very large rather quickly, and if you’re trading on the margin, you need to be aware of this.

Cons – Costs and Charges

Many brokers will charge you for holding a CFD position overnight. As well as a cost on financing on the asset, many providers will also add their own percentage.

Spread Betting

Pros – Tax Free

If you spread bet in the UK, then you do not pay tax on any profits as they’re classed as betting gains, meaning you don’t pay stamp duty or capital gains tax.

Pros – Long or Short

Much like CFDs, you can go long or short on your spread bets.

Pros – Short Term

If you don’t have much time to trade or do not want to hold a position for a long period, then spread betting could be advantageous. Due to market volatility, time periods start from a little as one minute.

Cons – Experience is Advised

Spread betting is usually targeted at experienced traders due to the associated risks.

Cons – Leverage

Much like with CFDs, leverage can be your friend and your enemy. Ensure that you know the risks before you trade on the margin. Particularly because you cannot offset any losses against capital gains and can lose more than your original investment. Some brokers offer a ‘stop loss’ tool to help with this.

To conclude, although they are similar, there are a range of positives and negatives to both CFD trading and spread betting, as well as some crucial difference. Ensure you do a thorough amount of research before you choose which is best for you.

Share This:

In this article

gemini