Financial Spread Betting vs CFDs

Going hand in hand with the rise of CFDs, has been the increasing popularity of financial spread betting. Spread betting and CFDs are very closely related but have some important differences.

With a financial spread bet the customer is basically taking somebody else's price, no different to walking into a bookmaker who's chalked up a two-way price on the board, and like betting on the horses the two-way price will often be skewed in the direction that the bookmaker thinks the price is going, effectively putting you at a slight disadvantage. Whereas with CFDs you trade at the market spread and with market liquidity and pay a separate commission on top.  This gives you better cost visibility and means you can be assured of market fills.

Spread betting and tax savings

More people currently spread bet than trade CFDs and the key reason behind this is the issue of tax (as well as it being easier to open a spread betting account). At the moment a financial spread bet is literally seen by the Inland Revenue as a bet, meaning there is no tax payable on it, income tax or capital gains tax (40% on short term investment profits above the £7200 threshold). The non-payment of tax on spread bets is a huge benefit financially compared to other forms of financial trading. Although you cannot offset any financial spread betting losses against other capital gains like you can with CFDs - Gordon Brown is no fool after all.

CFDs are somewhat cheaper to trade than financial spread betting on account of their tighter bid-offer spreads.  Broadly CFDs are for the more serious regular trader and financial spread betting is better suited for the occasional trade.

Many traders at Blue Index actually have two accounts, a spread betting one and a CFD one. Therefore on any given trade or view of the market you can weigh up the associated advantages and disadvantages of using one trading tool over the other.

At Blue Index we specialise in CFDs but we can also assist you in opening a financial spread betting account, and we are happy to objectively discuss the pros and cons of each type of trading method with you if you require.  Please call our friendly client services team if you require any more information on financial spread betting +44 (0) 20 7398 2562