Spread Betting vs CFD

Spread betting and contracts for difference (CFDs) are fundamentally similar instruments, as both allow traders to speculate on the rise or fall of a financial asset's price without physically owning it; however, they differ in legal structure and tax treatment, particularly in certain countries such as the United Kingdom.

In spread betting, the trader wagers a monetary amount per point of price movement in the underlying asset, and in some jurisdictions, profits are classified as gambling winnings and are exempt from capital gains tax. Conversely, CFDs are generally treated as investment instruments subject to capital gains tax according to the applicable tax regime.

Key similarities:

• No asset ownership: Both are derivative instruments based on price differences.
• Leverage: Both allow trading with less capital than the full position value.
• Multi-asset coverage: They cover equities, indices, commodities, and currencies.

Differences include the geographic availability of each product, as spread betting is primarily prevalent in certain markets such as the UK and Ireland, whereas CFDs are widespread globally. A common mistake is assuming identical tax treatment for both products across all countries without consulting relevant local legislation.

CFDs are available through brokers such as EVEST, with trading hours covering most of the week depending on the traded asset, whereas spread betting is primarily available in specific markets like the UK and Ireland with similar trading hours. The specifications of both products differ in terms of pricing units: spread betting is typically denominated as a fixed amount per point of movement, whereas CFDs are denominated by lot size and its associated pip/point value. Among the key advantages of both products is the ability to speculate on rising or falling prices without owning the physical asset, utilizing leverage to open positions larger than the available capital, alongside access to a diverse range of assets including stocks, indices, currencies, and commodities. The fundamental differences lie in tax treatment, where spread betting profits may be exempt from capital gains tax in some legal jurisdictions, while CFDs are typically subject to this tax. A shared risk is the potential for losses to exceed the deposited margin during periods of severe volatility, and a common mistake is assuming that the legal and tax treatment of both products is identical in all countries without consulting local regulations. Both products are closely tied to the forex market, as trading currency pairs is one of the most common applications for both CFDs and spread betting alike.