20+ Differences between CFD and Spread Betting (Explained)

People often need clarification when they hear the terms CFD and Spread Betting due to various similarities. CFD and Spread Betting can be considered alternatives to specific investments.

The significant difference between CFD and Spread Betting is that the former is taxable and available worldwide. At the same time, the latter is tax-free and is available in the United Kingdom (UK) and Ireland.

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Key Differences

CFD

• It is an initial for Contract for Differences. As the name suggests, it is a type of contract that takes place between a person (investor) and a broker. This contract concerns an exchange of value between the investor and broker regarding the price of various securities during the contract’s opening and closing.

• These contracts can be found in many countries worldwide.

• It works by predicting the value of specific financial securities while the contract is active. Suppose a person holding this type of contract thinks or predicts that the prices of specific financial security will rise. In that case, he will opt to sell the concerning financial security and vice versa.

• This contract’s notable feature that also helps differentiate this from Spread Betting is that these contracts carry an expiration date.

• People associated with these contracts must pay some form of tax on the amount earned as capital gains. However, people involved with these contracts do not have to pay any form of commission.

Spread Betting

• As the name suggests, it is a type of investing strategy where investors predict the prices of various financial securities and place their bets on them. Various Spread Betting companies provide investors with different prices of financial securities wherein the investors predict whether the prices of that very financial security would increase or decrease.

• It does not have a global application. Instead, it can only be found in the United Kingdom and Ireland.

• It gives the investors two options: buy and sell. The former is also called the bid price, and the latter is called the asking price. If the investors think that the prices of the financial securities will rise in the upcoming future, they go with the buy option, and if they believe the prices will fall, then they go with the sell option.

• Unlike CFDs, it is not associated with an expiration date.

• One of the significant advantages is that the gains earned from this strategy are entirely exempted from taxes. However, investors indulging in this strategy do have to pay some commission to the concerned companies.

Comparison Between CFD And Spread Betting

Parameter	CFD	Spread Betting
Meaning	It is an initial for Contracts for Differences. It can be best described as a type of derivative and trading where investors are expected to predict the prices of financial securities and gain their share of profit or loss, respectively. It is also referred to as a contract between brokers and investors.	It also comes in the category of Derivatives. It can be best described as a betting or trading strategy where investors predict the prices of financial securities by betting on the prices, whether they will rise or fall as per their best judgment and gain their respective share of profit or loss.
Demographics	This type of trading is considered more popular and common than Spread Betting and has a global application. This trading usage can be found in Australia, Canada, Japan, New Zealand, South Africa, Switzerland, the United Kingdom, etc.	This type of trading is less popular and common than CFDs and does not have a global application. Therefore, the usage of this strategy is limited to the United Kingdom and Ireland only.
What can be traded/Range of markets?	There are fewer categories of range of markets or what can be traded that are associated with this trading than Spread Betting. This trading deals with DMA shares, Forex, Share indices, Shares, ETFs, ETCs, Metals, Energies, Spot metals, Soft commodities, Options, Interest rates, Bonds, Sectors, Stock Index Futures, etc.	This Betting is associated with more categories of what can be traded or a range of markets. This strategy deals with Share Futures, Forex Futures, Daily Stock Index Futures, and Daily Oil Futures, etc., in addition to Forex, Share indices, Shares, ETFs, ETCs, Metals, Energies, Spot metals, Soft commodities, Options, Interest rates, Bonds, Sectors, Stock Index Futures, etc.
Deal size	The deal Size of this trading can be best described as several contracts or the number of shares one would like to trade, considering each contract or share has its some fixed value.	The deal size of this trading can be best described as specifying the total amount one would bet per the market movement.
Working	This trading works by letting various investors predict the prices of financial securities regarding whether they will increase or decrease. If an investor thinks that the prices will increase or rise, he would open a buy position and make a profit if the prices actually increase. In contrast, if he thinks the prices will decrease or fall, he would open a sell position and make a profit if the prices actually fall. Otherwise, he would cause a loss.	This trading works by letting investors bet upon the prices of financial securities on whether the prices will increase or decrease. If they think that the prices will increase or rise, then they would go long, meaning they would open a buy position and make a profit if the prices actually rise and lose if prices decrease. In contrast, if they think the prices will drop or fall, they would go short, meaning they would open a sell position and make a profit if the prices decrease and lose if prices increase.
Profit and loss	This contract’s size, the total number of CFDs, and an entry and exit value are associated with this contract. The difference between the entry and exit value has to be calculated to calculate the overall profit and loss, which is then multiplied by the contract size and number of CFDs.	Just like CFDs, a deal size is associated with this Betting, also known as the bet size, and an entry and exit value is associated with this trading. Therefore, the profit and loss related to this trading can be calculated by first calculating the entry and exit value, which has to be multiplied by the bet size.
Expiration date	These contracts are subjected to an expiration date as they are contracts between brokers and investors.	These contracts do not have any expiration date.
Taxability	The gains earned by investors through this trading are taxable.	The most significant advantage of this trading is that the gains investors earn through this method are tax-free.
Commission	People who indulge in this type of trading do not have any liability to pay any form of commission to brokers or concerned organizations.	People who indulge in this type of trading do have to pay some form of commission to brokers or concerned organizations.
Currency	This trading largely depends on the currency of the financial securities of the traded CFDs.	Generally, everything is listed in Pounds here as this trading only prevails in the United Kingdom and Ireland.
Corporate account	People indulging in this trading get the benefit of this account, the reason behind this being that this trading has global usage and is also quite popular.	People indulging in this trading do not benefit from this account as the usage of this trading is only limited to the United Kingdom and Ireland.
DMA	One of the significant benefits of this trading is that people who are involved in this trading get the benefit of DMA, meaning Direct Market Access.	People associated with this trading do not benefit from DMA, i.e., Direct Market Access.

Major Differences Between CFD And Spread Betting

What Exactly Is a CFD?

It is an acronym for Contracts for Differences. It comes under the Derivatives, meaning these contracts work by deriving the value of various financial securities. This contract derives the value of financial securities when the contract is active.

It should be noted that here, no one owns any financial securities. Instead, they predict its prices. If there is a change in the prices of specific financial securities from the opening of a contract to the ending of it, then the difference has to be settled between the investor and the broker.

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Key features: CFD

• It is an abbreviation for Contracts for Differences, a type of Derivatives.

• It can be best described as a contract or trading between an investor and a broker wherein the difference in the value of financial securities has to be settled as per the price differences that occur from the opening to the ending of the contract.

• These contracts are associated with an expiration date.

• It should be noted that no one explicitly owns any financial security under this contract. Instead, they predict whether the prices will fall or rise.

• If the investors predict that the prices of a particular financial security will fall or decrease in the future, then they typically put their concerned security to sell. If the prices of that financial security fall, then the investors make a profit which the broker settles. This is also known as going short in this type of trading. 

• However, if the investors predict that the prices of financial security will rise or increase, they can put their concerned security up for buying. And this is also known as going long in this type of trading. 

• These contracts are available in many countries all around the world. However, these happen to be banned in the United States of America (USA).

• The key feature of this contract is that an investor does not have to pay any form of commission, but his capital gains are taxable.

• The corporate account is typically available in these contracts.

• One of the other notable features of this trading is that it is available on automatic trading platforms such as MT4. 

What Exactly Is Spread Betting?

It is best described as an investing strategy available only in the UK and Ireland. Just like CFDs, this also comes under the category of Derivatives. Here, the investors place their respective bets regarding the prices of financial securities – on whether the prices will rise or fall.

Investors are given two options: buy and sell, which are also referred to as bid price and sell price. If the investors think the prices will rise or increase, they choose the buy option and vice versa. Spread in Spread Betting means the difference between the bid and sell price.

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Key Features: Spread Betting

• It also comes under the category of Derivatives.

• It can be best described as a strategy wherein the investors place their individual bets on the prices of financial securities.

• It is not subjected to any expiration date.

• In this type of investing, no one actually owns any financial security. Instead, they place their bet on whether the prices will rise or fall.

• If the investors bet that the prices of financial security will rise or increase, then they have the option of going “long” and can put the financial securities up for buy. If the prices increase, investors profit, and vice versa. 

• However, if the investors think that the prices of financial securities or the market will fall or decrease, they can go “short” and put their financial securities up for sale. If the prices drop, investors profit, and vice versa. 

• This strategy is not seen as popular as CFD is. This strategy or betting practice can largely be seen only in the United Kingdom (UK) and Ireland. 

• Capital gains earned by this strategy are tax-free. However, investors are liable to pay some commission to the companies that make Spread Betting possible. 

• Availability of corporate accounts is generally absent regarding this strategy/trading. 

• It is present on online automatic trading platforms such as MT4. 

Contrast Between CFD And Spread Betting

Meaning

• CFD – It is an initial for Contracts for Differences which can be best described as a form of trading or contract between investors and brokers wherein investors typically predict the prices of the financial instruments or market, whether they are going to increase or decrease, and end up either gaining or losing. This type of trading comes under the category of Derivatives. 

• Spread Betting – As the name suggests, it is a type of Betting or trading where investors are associated with placing their respective bets upon the prices of financial instruments or the market as per their judgment on whether the prices will rise or fall in the upcoming future and get their respective share of profits or losses depending upon the actual reality. This strategy also comes under the category of Derivatives. 

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What Is Meant by Derivatives? 

Derivatives can be best described as financial securities or a contract between brokers and investors whose value concerns the value of something else, such as an underlying financial security or instrument.

For example, when people trade shares and stocks, they either buy or sell them. But in Derivatives, investors predict the prices of financial securities such as shares, stocks, and debentures without actually buying or selling them.

These particular financial instruments can be traded in two ways: over the counter and through various stock exchanges. Futures, Options, Forward Contracts, and Swaps are four of the most popular categories of these financial instruments. 

Demographics

• CFD – This type of trading operates in more countries than Spread Betting. This type of trading is more popular and common than Spread Betting and can be primarily seen in Australia, Canada, Japan, New Zealand, South Africa, Switzerland, and the United Kingdom (UK). 

• Spread Betting – This strategy operates only in a few countries and is less popular and common than CFD. This trading can only be seen in the countries of the United Kingdom (UK) and Ireland. 

What Can Be Traded/Range of Markets? 

• CFD – This trading offers fewer categories of things that can be traded or the range of markets compared to Spread Betting. However, this trading is associated with the trading of DMA shares which is absent in the case of Spread Betting along with Forex, Share indices, Shares, ETFs, ETCs, Metals, Energies, Spot metals, Soft commodities, Options, Interest rates, Bonds, Sectors, Stock Index Futures, etc.

• Spread Betting – This trading offers more categories of what can be traded or a range of markets than CFDs. This type of trading is associated with providing Share Futures, Forex Futures, Daily Stock Index Futures, and Daily Oil Futures, etc., in addition to Forex, Share indices, Shares, ETFs, ETCs, Metals, Energies, Spot metals, Soft commodities, Options, Interest rates, Bonds, Sectors, Stock Index Futures, etc. 

Deal size

• CFD – To define the deal size of this trading, one must first specify the number of contracts one would like to trade. This number of contracts is sometimes called the number of shares. It should be noted that each contract or share is entitled to its fixed value. 

• Spread Betting – To define the deal size of this trading, one must first specify the total amount they would be betting on per point of the movement of the concerned market. It is usually in the form of Pounds as it is only available in the UK and Ireland. 

Working

•  CFD – This type of trading works with investors predicting the prices of specific financial securities or the market regarding whether they will rise or fall. If an investor who has bought this contract predicts that the prices of a security or instrument will rise or increase, then he would have to open a buy position. However, if he thinks otherwise, i.e., the prices will fall or decrease, then he would have to open a sell position. If the predictions go in his favor, then he makes a profit and, otherwise, a loss. An investor first opens a position either by opening a buy or sell position, which has to be closed with a sell position if the opening position is a buy position and vice versa. 

• Spread Betting – This type of strategy works similarly to Contracts for Differences. When investors predict the prices of financial securities or the market regarding whether they will fall or rise, they Spread bets. For example, if they think that the prices of financial instruments will increase, they would open a buy position or choose long. However, if they believe the prices will decrease, they would open a sell position or choose short. If the actual prices go in their favor, then they would make a profit and otherwise cause a loss. 

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What Is Meant by Going “long” and Going “short”? 

Going “long” and “short” is associated with trading derivatives. When an investor predicts that the prices of financial security will increase or rise, he buys the concerned financial instrument at a price that exists today.

This is meant as going “long.” Whereas, when an investor predicts that the future prices of financial security will decrease or fall, then sells the concerning financial security at a current price. It is meant as going “short.” 

Profit and loss

• CFD – Net profit or loss can be calculated by considering the difference between the opening and closing positions. It should be noted that when a person buys this contract, there is generally the size of one contract and the number of associated CFDs. When the contract ends (as they have an expiration date), there is also an entry and exit value associated with it. The total profit and loss can be calculated by calculating the difference between the entry and exit value, which must be multiplied by the number of CFDs and the contract size. 

• Spread Betting – Just like in CFDs, there is the number of CFDs and the contract size. Similarly, in this Betting, there is a bet size wherein investors specify the total amount they would be betting per unit of the market’s movements. Just like there is an entry and exit value in CFDs, there is an opening and closing price in this Betting. The total profit and loss can be calculated by calculating the difference between the opening and closing price (or entry and exit value) and then multiplying it by the bet size. 

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What Is the Meaning of “spread” in Spread Betting? 

In any trading, whenever an investor buys any security for any price, it is labeled as the bid price and the buy price. In contrast, whenever an investor sells the concerned security at any price, it is labeled as the asking and selling prices. The difference between the buy and sell price or bid and ask price specifies one’s share of profit or loss. The same difference is also termed as Spread. 

Expiration date

• CFD – One of the notable features of this trading is that it generally has an expiration date. 

• Spread Betting – Unlike CFDs, this strategy has no expiration date. 

Taxability

• CFD – The notable feature of this trading that distinguishes significantly between this and Spread Betting is that the profit generated through this trading is taxable. 

• Spread Betting – One of the more significant benefits of this strategy is that the profits earned through this Betting are entirely tax-free. 

Commission

• CFD – People contacting brokers or concerned companies to buy these contracts do not have to worry about paying any form of commission. 

• Spread Betting – People getting involved with this strategy or Betting have to pay some form of commission to the concerned brokers or companies. 

Currency

• CFD – The currency which is associated with these contracts primarily depends upon the currency of the concerned financial asset or security of the CFDs. 

• Spread Betting – The currency associated with this strategy is listed in EU Pound, as this strategy only prevails in the United Kingdom and Ireland. 

Corporate account

• CFD – Corporate accounts can be best described as accounts primarily used by businesses for many purposes. One of the significant benefits of this trading is that these accounts are available to people involved in this type of trading. This is mainly because this trading typically has a global application compared to Spread Betting. 

• Spread Betting – Unlike CFDs, this strategy or trading does not involve the usage of Corporate Accounts. The main reason behind this can be understood in respect of it not having a global use, rather than it being available only in the UK and Ireland. 

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What Is a Corporate Account? 

This type of account can be best described as an account that businesses predominantly use to manage their finances. These accounts provide more flexibility and are predominantly used by businesses for three primary purposes: Saving, Investing, and Banking. The main benefits of opening a Corporate account are better investment opportunities and higher protection. 

DMA

• CFD – People indulging in this trading benefit from DMA, which is an initial for Direct Market Access. This can again be understood in the context that this trading has global usage. 

• Spread Betting – Unfortunately, people indulging in this Betting do not get DMA either, as this strategy is only available to the residents of the UK and Ireland. 

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What Is the Exact Meaning of DMA? 

As the name suggests, DMA is an abbreviation for Direct Market Access which allows investors to have direct access to the stock exchanges by using various CTCL software. Typically only recognized brokers, multiple organizations, and banks are available for this software.

An investor himself can not have DMA, but he can only have access to it through brokers and other middlemen. The significant benefit of DMA is that it is concerned with greater efficiency and lower costs. The transaction rate is also high-speed. 

CONCLUSION

People often get confused when they hear the words CFDs and Spread Betting. Both methods come under the Derivatives category and can be considered alternatives to actual investment. People here do not actually own financial instruments.

Instead, they predict their future prices. The significant difference between CFDs and Spread Betting is that the former is more common and is taxable but commission free. In contrast, the latter is less common and is tax-free but involves commission. 

FREQUENTLY ASKED QUESTIONS (FAQs)

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