CFDs vs Spreadbetting
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 client is basically taking somebody else's price, which is in reality no different to dealing with a bookmaker who's chalked up a two-way price on the board. Similar to betting on the horses, the two-way price will often be skewed in the direction that the bookmaker believes the price is going, effectively putting the client at a slight disadvantage.
With CFDs you trade at the market spread with market liquidity and pay a separate commission on top. This gives better cost visibility and means you can be assured of market fills.
More people currently spread bet than trade CFDs and the key reasons behind this are the issue of tax and the relative ease with which one can open a spreadbetting 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. The non-payment of tax on spread bets is a huge benefit financially compared to other forms of financial trading.
It should be remembered that financial spreadbetting losses cannot be offset against other capital gains as they can with CFDs.
The main benefit of CFDs is that bid-offer spreads are generally tighter than for spreadbets. Broadly speaking, CFDs are for the more serious regular trader and financial spread betting is better suited for the occasional trade.
Many traders with Blue Index actually have a spreadbetting and CFD account. 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 spreadbetting 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 client services team if you require any more information on 0207 398 2562.
