The Differences Between CFD Trading and Financial Spread Betting

Sep 12, 2011, 11:16 ET from City Index

LONDON, September 12, 2011 /PRNewswire/ --

CFD trading and spread betting are very similar, but they differ in some crucial ways. Here, award-winning spread betting and CFD trading provider City Index (http://www.cityindex.co.uk/) looks at the key factors to consider when choosing between the two.

That said, the two are not mutually exclusive, as Joshua Raymond, Chief Market Strategist at City Index, states: "At City Index you can trade both products through the same platform, so many of our clients choose to trade both CFDs and spread bets within their portfolio. On our application form, new clients can choose to open both accounts simultaneously. So, whilst clients certainly tend to trade spread bets more, with a City Index trading account, they have the quick resources to switch to, or add, CFD positions to their portfolios."

The Differences

Mr. Raymond outlines the first difference in the fact that CFD trading profits are subject to capital gains tax, while profits from spread betting currently are not.* "However, you can offset losses in a CFD trade used as a direct hedge, which is why some traders prefer CFDs to hedge."

Another contrast is that spread bets are monetised in a trader's base currency, whereas CFD trades are monetised in the underlying market currency. This means CFD trading returns can be affected by currency fluctuations, so spread betting can be viewed as more transparent, particularly for beginners.

Finally, there is the opinion that CFD trading simply sounds more professional than spread betting. In reality, the products are very alike, but the term 'spread betting' occasionally alienates traders.

Try both spread betting and CFD trading today with a free demo account from City Index. For full details visit http://www.cityindex.co.uk/learn-to-trade/demo-account.aspx

Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

*Spread betting and CFD trading are exempt from UK stamp duty. Spread betting is also exempt from UK Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

About City Index

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFDs trading and, in the UK, spread betting.

We constantly look to widen the range of assets we offer, improve the performance of our platforms and expand the range of services we provide. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer service and support. For more information, visit http://www.cityindex.co.uk/.

SOURCE City Index