CFD’s and spread betting both offer excellent opportunities to invest in derivatives. Just like a Contract for Difference (CFD), spread betting is a way of betting on the movement of a stock without taking physical possession of the stock or index at any point of time thereby exempting oneself from paying the stamp duty. Spread bets too provide you the provision of opening and closing at a price quoted by the broker and assessing the final price based on the performance of the underlying shares. However in order to choose one amongst these two as an investment option it is always a wise decision to familiarize oneself with the similarities and differences associated with both Contract for Differences and Spread Betting.

Similarities between CFD’s and Spread Betting:

• Both CFD’s and Spread bets allow you to trade on margins. This means that you pay only a small part of the total value of the position as a deposit.
• Since in both cases the investor does not physically own the traded instrument therefore the investor is exempted from paying the stamp duty associated with the instrument.
• CFDs as well as Spread bets allow you to buy at the offer price and to sell at the bid price. Using these techniques one can easily buy the instrument when the prices are subjected to rise and then subsequently sell off when the prices begin to show a downward slide.
• The markets in which the two are traded and dealt in are almost the same.
• The dealing terminology associated with both CFD and spread bets are almost similar.
• Both CFD’s and Spread bets allow you to place controlled risk trades.
• When one deals in Indices and sectors using CFD’s and Spread bets the process and trade practices are almost identical.

Differences between CFD’s and Spread Betting:

• CFD’s are subject to capital gain tax while Spread bets are exempted from it.
• CFD traders enjoy the benefit of dividends when they hold a long position as and when relevant but Spread betters do not get this benefit.
• The prices involved with spread betting are though based on the actual market but are subsequently set by the trader thereby making the prices synthetic. The spread will therefore be wider than the actual market price so as to accumulate the commission which the provider adds from his side. On the other hand, CFD’s provide the investor the best price available in the market.
• Positions for CFD’s are set in the same currency as that of the underlying asset while in the case of spread betting the denomination is location specific. Retailers therefore find spread betting more convenient than CFD’s.
• CFD’s attract financing charges.
• With spread bets the contract will end only at the set expiry date while in the case of CFD’s you have the flexibility of closing your position as per your desire. Your contract here will only expire once you decide to close your set position.
• The above mentioned difference also indicates that the contract periods associated with CFD’s are flexible while in case of Spread betting if you desire to roll over your contract it will attract costs.