| At first glance the similarities between CFD trading | | | | dictates how much you win or lose. |
| and financial spread betting are perhaps more obvious | | | | While there is no stamp duty, capital gains tax, or |
| than the differences. Indeed, they both use similar | | | | broker's fees to pay you will have to pay the dealing |
| terminology and both offer an extensive range of | | | | spread levied by the provider. But remember, tax law |
| markets to choose from. However, it's important | | | | is subject to change and can differ depending on |
| that you understand the differences between the | | | | your circumstances. |
| two before making a decision. | | | | CFD trading |
| Financial spread betting and CFD trading - Key | | | | As in financial spread betting, CFD trading allows you |
| similarities | | | | to back your judgement as to whether you think a |
| They are both margined products, allowing you to | | | | financial instrument will go up or down in value. The |
| benefit from increased leverage. That is, you pay a | | | | key difference here is that instead of betting 'pounds |
| small initial deposit (margin) and that allows you to | | | | per point' you actually buy or sell each contract, |
| take a larger position than you would be able to in | | | | which are the contracts for difference or CFDs. |
| say traditional shares trading. | | | | A contract for difference is an agreement to |
| With both financial spread betting and CFD trading it | | | | exchange the difference in value of a financial |
| is easy for you take advantage of rising or falling | | | | instrument between the time at which it is opened |
| markets. In both you can choose to 'buy' (go long) at | | | | and the time at which it is closed. Your profit or loss |
| the offer price, or, and this is an advantage over | | | | is determined by the difference between the price |
| traditional shares trading, you can 'sell' at the 'bid' price | | | | you buy at to the price you sell at, multiplied by the |
| (go short). | | | | amount of contracts you hold of course. |
| Effectively, because you don't physically own the | | | | While there is no stamp duty or broker's fees to |
| underlying asset you have the flexibility and freedom | | | | pay, you will have to pay a commission which is |
| to back your judgment as to where you think a | | | | calculated as a percentage of the value of the |
| market will move. | | | | transaction. With CFD trading it is possible to benefit |
| Both CFD and financial spread betting providers offer | | | | from Direct Market Access which means any |
| a range of risk management tools including stop and | | | | contracts you open will go directly to the stock |
| limit orders, trailing stops and guaranteed stops. In | | | | exchange and will be at the underlying market price. |
| both you pay no Stamp Duty - as you don't | | | | Conclusion |
| physically own the underlying asset. For instance, with | | | | A recent report by research organisation Investment |
| shares, no physical exchange of shares takes place. | | | | Trends points out that there are 83,000 people in the |
| Financial Spread betting | | | | UK with a financial spread betting account against |
| When you spread bet you decide which way you | | | | 18,000 people with CFD accounts. Most providers |
| think a financial instrument in the market will move. | | | | offer education and guidance which will further help |
| For example, you would 'buy' if you think, say, the | | | | you choose between the two. It is always important |
| share price of Barclays will go up and 'sell' if you think | | | | to note that financial spread betting and trading CFDs |
| it's likely to fall. Each bet you make will be a certain | | | | can result in losses that exceed your initial deposit, so |
| amount of money per point - generally the minimum | | | | please make sure you fully understand the risks |
| bet size is £1. The degree to which you are correct | | | | involved. |