Contracts for difference

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10. Comparison of CFD trading to spread betting

Like CFDs, spread bets are a way to 'bet' on the movement of a stock (or index) without actually owning the underlying share and therefore without paying stamp duty. As with CFDs, you open and close at a price quoted by the broker/indexation company, and the price offered is determined by the performance of the underlying shares. But there are differences:

• With CFDs, you are liable for Capital Gains Tax on profits, and can offset losses against other CGT liabilities. With spread bets, your profits are not liable for CGT, nor can you offset losses.
• Spread bets often have a set expiry date when the bet closes out (whether you like it or not). With CFDs you have the choice on when to close your position.
• The spreads on CFDs match the SETS share price or are very close to it; the spreads on spread betting are at the discretion of the indexation company and traditionally are wider than those on CFDs (indexation companies do not charge commission, but make their money on the spreads).
• With CFDs, if you hold a long position you receive the benefit of any dividends being paid on the underlying share. With spread bets you don't.

Click here for a quick, visual, presentation of the differences between ordinary share investing, spread betting, and CFDs.

1. What are CFDs? 2. The benefits of CFDs 3. Initial margin 4. Variation margin 5. Commission costs 6. Interest payments 7. Dividends 8. Example of a long and short trade 9. Comparison of CFDs to share investing 10. Comparison of CFD trading to spread betting 11. Types of order 12. Stop losses 13. Strategies: Pairs trading 14. Strategies: Hedging an equity portfolio 15. Opening an account with a broker 16. Conclusion

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