CFD vs. Spread Betting: What’s the Difference?

If you’re considering entering the world of leveraged trading, you may have come across two popular products: spread betting and CFD trading. While they offer similar benefits, it’s important to understand the key differences between the two.

Spread betting is a tax-free strategy where you speculate on the direction of an asset’s price, either up or down. You decide the amount you want to bet per point of movement, and the price is based on the underlying data. Brokers provide two prices for spread bets: a bid price to buy and an ask price to sell. The difference between the two is known as the “spread,” and brokers earn a small portion of it as profit without adding any commission to the trade.

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What is Spread Betting

CFD trading, on the other hand, is a financial derivative based on the underlying market. When trading a CFD, you’re buying or selling contracts that represent an amount per point in that market, similar to trading the physical instrument but without taking ownership of the asset. This margined product allows you to open a large position with a small amount of capital, meaning you can win or lose significantly more than your initial deposit.

Both spread betting and CFD trading allow you to take advantage of rising or falling markets at any time of the day and on a broad range of markets including forex, indices, stocks, and commodities. They also provide opportunities to go long or short with leverage and a smaller margin requirement, giving you exposure to the market without having to own the underlying asset.

In conclusion, spread betting and CFD trading are both excellent options for leveraged trading, and the choice ultimately comes down to your personal preferences and trading goals.