Spread betting vs CFDs

Spread bets and contracts for difference (CFDs) are both leveraged products – enabling you to open a position while putting up just a percentage of the capital. Though they share many benefits, there are key advantages unique to each.

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Advantages of spread betting

  • No capital gains tax1
  • No commission, just our spread
  • Easy to bet in the currency of your choice – greater control of currency exposure
  • Deal on rising and falling markets
  • Leveraged access to the markets
  • No stamp duty
  • 24-hour dealing
  • Use prices based on the underlying market

Advantages of CFDs

  • Direct market access (DMA) on forex2 and shares
  • Losses can be offset against profits for tax purposes
  • Deal on rising and falling markets
  • Leveraged access to the markets
  • No stamp duty
  • 24-hour dealing
  • Use prices based on the underlying market

Spread betting vs CFDs: key differences

The key difference between spread betting and CFD trading is how they are taxed. Spread bets are free from capital gains tax, while profits from CFDs can be offset against losses for tax purposes. There’s no stamp duty to pay with either product because you don’t take ownership of the underlying assets when you trade.

Both enable you to go long or short, though there are technical differences in how they work:

  • Spread betting involves staking an amount of money per point of price movement in the underlying asset
  • CFD trading involves exchanging the difference in price from the point at which the contract is opened to when it is closed

All spread bets have a fixed expiry date, while CFDs don’t expire (with the exception of futures). Professional traders can get DMA on forex and shares with a CFD trading account.2

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Is spread betting or CFD trading best for me?

If you’re experienced in the financial markets, both spread betting and CFD trading can bring variety and range to your portfolio. You can see a full comparison in the table below.

Spread betting could be for you if...

  • You want any profits to be tax-free1
  • You want to control the size of your deal
  • You want to deal shares in smaller sizes and not be penalised by a minimum commission
  • You want to deal all international markets in sterling
  • You want to take a longer term view on forex and shares with forward markets

Learn more about spread betting

CFD trading could be for you if...

  • You're already comfortable with the underlying market and its terminology, so want a product that feels similar
  • You want to use DMA for shares and forex2 trading, while getting our OTC benefits
  • You want to offset losses against profits as a tax deduction
  • You want a corporate or professional trading account
  • You are hedging physical assets in your portfolio
  • You want an efficient way to hedge using the tax-deductible benefits of CFDs

Learn more about CFD trading

Derivative product differences in detail

Spread betting CFD trading
What is it? The placing of a bet that allows for a range of outcomes. Trading a financial derivative – you deal on prices derived from the underlying market, not on the underlying market itself.
Are there expiries? Expiry dates far in the future. No expiry dates (excluding forwards).
Do I pay tax? You don’t pay capital gains tax or stamp duty.1 You don’t pay stamp duty, but you do pay capital gains tax. However, losses can be offset as a tax deduction.
When can I trade? 24-hour dealing on forex and major stock indices. During the underlying market hours for other markets. We also offer weekend trading on selected markets. 24-hour trading on forex and major stock indices. During the underlying market hours for other markets. We also offer weekend trading on selected markets.
Do I pay to keep positions open? Overnight funding on daily funded bets. Rollovers on forwards and futures. Overnight funding on all markets, except futures. Rollovers on futures.
Does IG profit if I lose? We profit primarily from spreads and funding, and hedge the majority of net client exposure. We accept a low level of risk, from which we can make a small profit or loss. We profit primarily from commission, spreads and funding, and hedge the majority of net client exposure. We accept a low level of market risk, from which we can make a small profit or loss.
The outcome of a client’s DMA2 trade never has an impact on our profit or loss.
What kind of trading is it suitable for? Intra-day, daily and
medium-term
Intra-day, daily and medium-term
Can I receive dividends? We make a dividend adjustment on equity and stock index spread bets. We make a dividend adjustment on equity and stock index CFDs.
Can it be used for hedging? Yes, but CFDs can be more effective because of their tax-deductible benefits. Yes
Can I open a corporate account? No Yes, we offer corporate accounts.
Range of markets More than 17,000 markets, including:
Forex
Stock indices
Shares
Cryptocurrencies
ETFs and ETCs
Metals
Energies
Spot metals
Soft commodities
Options3
Interest rates
Bonds
Sectors
Share forwards
Forex forwards
Daily stock index futures
Stock index futures
Daily oil futures
More than 17,000 markets, including:
Forex
Stock indices
Shares
Cryptocurrencies
DMA forex2
DMA shares
ETFs and ETCs
Metals
Energies
Spot metals
Soft commodities
Options3
Interest rates
Bonds
Sectors
Stock index futures
The mechanics of dealing You define the size of your deal by selecting the amount you want to bet per point of movement (£/pt). Profits and losses realised in currency you bet in. You define the size of your deal by selecting the number of contracts or shares you want to trade. Each contract has a fixed value. Profits and losses realised in traded market’s base currency. GBP contracts available.
The charges A spread on all markets. No commission. Funding adjustments (excluding futures and forwards). A spread on all markets except shares. We charge a commission on share CFDs, but no spread. Funding adjustments (excluding futures).
Dealing platforms Desktop dealing
Mobile app (iPhone, Android)
Tablet app (iPad)
MetaTrader 4
ProRealTime
Desktop dealing
Mobile app (iPhone, Android)
Tablet app (iPad)
L2 Dealer (DMA)2
MetaTrader 4
ProRealTime
Direct market access No Yes, for forex2 and shares
Getting started Introduction programme
Interactive platform preview
Demo account
Introduction programme
Interactive platform preview
Demo account

Example trades

FTSE 100 spread bet vs CFD trade

The below example takes a short position on the FTSE 100 – using the same deal size, it compares the process and outcome of a spread bet and a CFD trade if the market falls as predicted.

Spread bet

CFD trade

Spread bet CFD
Underlying market value FTSE 100 6200
Our price 6199.5-6200.5 6199.5-6200.5
Deal Sell at 6199.5 Sell at 6199.5
Deal size £10 per point One contract. Each contract is worth £10 per point
Margin required £3100 Deal size x mid price x margin rate (5%) £3100 Deal size x mid price x margin rate (currently 5%)
What happens next? The market falls to 6150 by 10pm. This is the price our funding is calculated at. It continues to fall steadily until the next day, reaching 6120.
Funding Overnight funding charge of £3.38
(One-month Libor (eg 0.4925%) minus 2.5% x value of deal x underlying level at 10pm) / 365 (-2.0075% x £10 x 6150) / 365
Overnight funding charge of £3.38 (One-month Libor (eg 0.4925%) minus 2.5% x value of deal x underlying level at 10pm) / 365 (-2.0075% x £10 x 6150) / 365
Underlying market 6120
Close Buy at 6120.5 Buy at 6120.5
Overall market movement and profit/loss 6199.5 – 6120.5 = 79 Value of one point = £10
Gross profit = 79 x £10 = £790
6199.5 – 6120.5 = 79 Value of one point = £10
Gross profit = 79 x £10 = £790
Costs 1 pt spread: the underlying fell by 80 pts, but you benefited from a fall of 79. Funding deducted from cash balance: £3.38 1 pt spread: the underlying fell by 80 pts, but you benefited from a fall of 79. Funding deducted from cash balance: £3.38
Net profit £786.62 tax-free* £786.62 subject to tax
What if... If the underlying market rose to 6280 pts instead: 6280.5 – 6199.5 = 81 pts
81 x £10 + £3.44 (higher funding cost to account for higher market close at 10pm)
£813.44 net loss
If the underlying market rose to 6280 pts instead: 6280.5 – 6199.5 = 81 pts
81 x £10 + £3.44 (higher funding cost to account for higher market close at 10pm)
£813.44 net loss

The profit and net loss for placing this trade via spread bet or CFD is the same.

However, while spread bets are tax-free and you keep all your profit, CFDs can be subject to capital gains tax, depending on individual circumstance.

Because CFDs are subject to tax, you can offset losses you make via CFD as a tax deduction.

* Please note that tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

GBP/USD spread bet vs CFD trade

The below example demonstrates the differences between a spread bet and CFD trade on a long GBP/USD position, showing the outcome if the market rises as expected.

Spread bet

CFD trade

Spread bet DFB CFD
Market Spot GBP/USD
Price 15,579.7/15,580.5 1.55797/1.55805
Deal Buy $10 a point at 15,580.5 Buy 1 contract at 1.55805 (1 contract = £100,000)
Initial margin required Notional value is $155,805 (or £100,000) and margin factor is 3.33%, so margin = $5188.3 (or £3330)
What happens next? GBP/USD rallies overnight, and the position is held through 22:00 (London time)
Funding Funding = amount per point x funding adjustment factor= $10 x 0.27
= $2.70
Where funding adjustment includes underlying tom-next rate and IG's charge for holding positions overnight which is no more than 0.0022% per day.
Funding = amount per point x funding adjustment factor = $10 x 0.05
= $0.50
Where funding adjustment includes underlying tom-next rate and IG's charge for holding positions overnight which is no more than 0.0022% per day.
Price 15,695 - 15,695.8 1.5695 - 1.56958
Close You sell at 15,695 You sell at 1.5695
Gross profit $1145
15,695 – 15,580.5 = 114.5
Value per point = $10
114.5 x $10 = $1145
$1145
1.5695 – 1.55805 = 0.01145
Number of points = 0.01145 x 100000 = 114.5
114.5 x 10 = $1145
Costs 0.8 point IG spread (included)
Funding cost = $2.70
0.8 point IG spread (included)
Funding cost = $0.50
Net profit $1142.30 tax free* $1144.50 subject to tax
What if... If the market dropped 114.5 points instead:
$1145 + $2.70
Net loss = $1147.70
If the market dropped 114.5 points instead:
$1145 + $0.50
Net loss = $1145.50

Find more examples of spread betting and CFDs.

What are DFBs?

Daily funded bets (DFBs) are long-term bets on the cash price of an underlying instrument. DFBs have no expiry date, so we make a cash adjustment to your account to reflect funding charges.

Why do CFD and spread betting FX prices look different?

  • You trade forex via CFD in contracts or lots. We therefore display CFD forex prices in the same way you would expect to see them on an FX exchange: e.g. 1.31425
  • Because you spread bet on forex in currency per point, we display prices differently e.g. 13142.5. This makes it easier to see per point movements.

This makes no difference to the price you deal at or your potential profit or loss: it simply makes it easier to track per point movements.

* Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

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Fast execution on a huge range of markets

Enjoy flexible access to more than 17,000 global markets, with reliable execution

Deal seamlessly, wherever you are

Trade on the move with our natively designed, award-winning trading app

Feel secure with a trusted provider

With 45 years' experience, we’re proud to offer a truly market-leading service

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1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2 From 2 July 2018, regulatory interventions mean that certain products are unavailable to retail traders. As a result, we can only offer Forex Direct (forex DMA) to professional traders. To find out more about this, and to check whether you are eligible for a professional account, please see our professional account page.
3 Options are only available via spread betting accounts and professional CFD accounts.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.