Why trade CFDs?

What is the difference between CFDs and Spread Betting and why choose CFDs over Spread Betting?

CFDs have many similarities to spread betting. Both are leveraged investing, and both enable you to go long or short. However the key difference between spread betting and CFDs, is that unlike spread betting, CFDs are not considered gambling, and therefore although CFDs are exempt from Stamp duty, they are subject to capital gains tax in the UK and Ireland.

At first glance, this may seem like only a disadvantage versus spread betting, however it actually can work both ways, because losses incurred trading CFDs can be offset against future profits for capital gains tax purposes. This may be relevant if you are using short trades to hedge a long position, and therefore, if your long position is successful, you can benefit from using the losses on the short position to offset some of your capital gains.

Excluding the tax treatment, there is not a great deal of difference between the two products - this was what led many CFD providers to enter the spread trading market in the early 2000s.

More subtle differences that influence choosing one over the other are the commission structures and charges incurred on trading via CFDs versus Spread Betting. Spread bet firms make money on offering a spread that is bigger than the available market. CFDs offer a commission - compare CFD companies here.

Finally, there are slight differences in the way the products are traded, that might cause you to choose one over the other, since CFDs are traded in a similar style to traditional shares trading (so if that is your background, you may prefer this familiar approach), whereas spread bets are based around buy and selling points.

For more informin in why you might want to trade CFDs rather than Spread Betting or other products, the following video also provides some insight: