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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
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
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 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 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
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.
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.
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