The Differences Between CFD Trading and Spread Betting

LONDON, September 29, 2011 /PRNewswire/ --

City Index (http://www.cityindex.co.uk/) provides traders with access to both spread betting and CFD trading. At face value, the two trading styles appear similar; however, they are not the same. Read on for four key differences between spread betting and CFD trading.

Tax

Spread betting and CFD trading are derivative trading methods, which means you do not own the underlying share, currency or commodity. Instead, you speculate on how the underlying instrument will perform within the financial markets. Because you do not own the instruments, you currently do not have to pay stamp duty on your returns.* However, you do have to pay capital gains tax on CFD profits. Like many things in trading, this is both an advantage and a disadvantage. Losses made in CFD trading can be offset against future profits for tax purposes, whereas losses in spread betting are gone for good.

Timing

The contract periods between the spread betting and CFD trading is a further difference. Spread bets have a fixed expiration point and will close when the contract runs out. Contracts are usually daily, monthly or quarterly, and bets can be rolled over at a charge. CFDs have no such expiration date and can be kept running indefinitely.

Cost

Another major difference between the products is in the way they are paid for. In spread betting, the price is built into the eponymous 'spread', the difference between the buying and selling price that must be covered by the trader before a profit can be made. CFD trading is paid for by a small commission charge. Because of this difference in pricing, CFDs generally have tighter spreads.

Denomination

In spread betting, trades are always denominated in your local currency (pounds sterling in the UK).  This is not the case with CFDs, which are traded in their native currency. So if you are trading on stocks on the US stock exchange, not only will you have to think about the rises and falls of that particularly stock, you will also have to think about the changes in exchange rate between sterling and the dollar. Naturally this can go in a trader's favour, but it can also reduce profits or increase losses.

Learn more about spread betting and CFD trading at http://www.cityindex.co.uk/

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, contracts for difference (CFDs) 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, mobile trading, competitive spreads, and a high standard of customer service and support.

SOURCE City Index

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