FAQ Page 3 - Question 30

Q: Any thoughts on using spread betting versus Contracts for Difference (CFDs) to trade shares?

A: The ultimate answer to this question can only really be answered with hindsight. IF the trade that you've just done has earned a nice profit then to have used spread bets would have been the right choice because the profit would be 100% tax-free. BUT if the trade was a loss then Contracts for Difference (CFDs) because you'd be able to offset this against your capital gains tax obligations.

However a slightly more useful answer would look at costs involved with trading each product because CFDs are somewhat cheaper to trade on account of their tighter bid-offer spreads, BUT it would also depend on how regular you were trading.

If you were an aggressive day or short term trader doing many trades a week then using spread bets would likely eat into your profits, even though there would be no commission levied because of the wide bid-offer spreads.

Many traders actually have two accounts, a spread betting one and a CFD one. Therefore on any given trade or view of the market you can weigh up the associated advantages and disadvantages of using one trading tool over the other.

For more information on Contracts for Difference, CFDs click here