Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
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CFD vs Spread betting
Compare tax treatment, costs, and trading structure for UK traders.
Call 020 7638 6996 or email newaccounts@guardianstockbrokers.com to discuss opening a trading account.
Introduction to CFDs vs Spread Betting
CFDs and spread betting are two closely related leveraged trading products that allow traders to speculate on financial markets without owning the underlying asset. While they share many similarities in how trades are executed and risks are managed, there are important structural differences between them, particularly in relation to tax treatment, costs, and trading format.
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In the UK, the distinction between CFDs and spread betting is especially relevant. Spread betting profits are generally exempt from Capital Gains Tax, whereas CFD profits are taxable but may allow losses to be offset against gains. As a result, neither approach is inherently “better”; the most suitable option depends on how profits and losses arise over time, the trader’s structure, and individual circumstances.
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In practice, spread betting is often favoured by profitable UK retail traders due to its tax treatment, while CFDs are more commonly used where loss offsetting or structured trading arrangements are required.
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This guide provides a factual comparison of CFDs and spread betting for UK traders. It explains the key differences in tax treatment, costs, and mechanics, outlines where each approach is typically used, and highlights the risks associated with leveraged trading. The aim is to help readers understand how CFDs and spread betting differ in practice, rather than to recommend one approach over the other.
CFD vs Spread Betting: Key Differences in the UK
The key differences between CFDs and spread betting relate to tax treatment, costs, and how trades are structured, particularly for UK traders.
Tax Efficiency:
In the UK, spread betting is widely regarded as tax-efficient because profits are generally exempt from Capital Gains Tax. This can be attractive where trading is profitable. CFDs, by contrast, are subject to Capital Gains Tax, but allow allowable losses to be offset against gains in the same or future tax years. As a result, CFDs may be more suitable where losses occur or where loss carry-forward is relevant.
Stamp Duty:
Both spread betting and CFDs are exempt from stamp duty, which normally applies to purchases of UK shares.
Commission Charges:
Spread betting typically does not involve commission, as trading costs are incorporated into the spread. CFD trading may involve commission on certain instruments, particularly shares, depending on the market traded.
Market Spreads:
In spread betting, trading costs are embedded within the spread, which can be wider than equivalent CFD spreads. CFD trading often features tighter spreads, with commissions applied separately where relevant.
Funding Costs:
Both CFDs and spread betting may incur overnight financing charges when positions are held open. These costs depend on position size and prevailing interest rates and can materially affect longer-term trading performance.
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CFDs vs Spread Betting: How Trades Are Structured
Understanding how CFDs and spread bets are placed is crucial for traders looking to engage in either trading approach.
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CFD Trading:
With CFDs, traders buy or sell a specified number of contracts linked to an underlying asset. Profit or loss is determined by the difference between the opening and closing prices, allowing direct participation in price movements without owning the asset.
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Spread Betting:
Spread betting involves speculating on price movements by staking an amount per point of movement. Profit or loss is based on the change between opening and closing prices, multiplied by the stake per point. Unlike CFDs, spread betting does not involve trading a fixed contract size.
CFDs vs Spread Betting: Pros and Cons of Each Trading Approach
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Both CFDs and spread betting offer leveraged exposure to financial markets, but their advantages and disadvantages differ depending on tax treatment, cost structure, and how profits and losses are treated over time.
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Spread Betting
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Pros
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Profits are generally exempt from Capital Gains Tax in the UK, which can be advantageous where trading is profitable.
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Trading costs are typically incorporated into the spread, with no separate commission in most cases.
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Access to a wide range of global markets, including indices, forex, shares, commodities, and bonds.
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Leverage allows positions to be opened with a relatively small initial deposit.
Cons
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Losses cannot be offset against gains for tax purposes or carried forward.
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Spreads can be wider than equivalent CFD trades, which may increase trading costs.
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Overnight financing charges may apply where positions are held open.
​CFD Trading
Pros
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Allowable losses can be offset against gains in the same or future tax years, providing symmetry where both profits and losses occur.
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No stamp duty is payable on CFD trades.
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Leverage enables access to larger market exposure with a smaller upfront deposit.
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CFDs provide direct exposure to the price movement of the underlying asset.
Cons
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Profits are subject to Capital Gains Tax.
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Commission charges may apply on certain instruments, particularly shares.
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Requires a clear understanding of market movements and risk management due to leverage.
CFDs vs Spread Betting: How Each Is Typically Used
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Neither CFDs nor spread betting represent a single “best” trading approach. In practice, each is commonly used in different circumstances depending on trading objectives, structure, and tax considerations.
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Spread Betting
Spread betting is commonly used by UK retail traders who prioritise tax efficiency and simplicity. It allows traders to speculate on price movements using a stake per point model, with profits generally exempt from Capital Gains Tax. This structure is often favoured where trading is profitable and losses are not required to be offset for tax purposes.
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CFD Trading
CFDs are more commonly used where traders require loss offsetting, trade through professional or corporate structures, or need exposure to specific instruments or strategies. The ability to offset losses against gains can be important where returns fluctuate over time or where trading activity spans multiple tax years.
CFDs vs Spread Betting: Comparing the Costs and Charges
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When comparing CFDs and spread betting, costs and charges typically arise in different ways depending on how each product is structured. The main considerations include commissions, market spreads, tax treatment, and overnight financing costs.
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Commission Charges
CFD trading may involve commission charges, particularly on share CFDs, with the level of commission varying by market and provider. By contrast, spread betting generally does not involve a separate commission, as trading costs are incorporated into the quoted spread.
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Market Spreads
The market spread represents the difference between the bid and ask price of an instrument. With spread betting, the provider’s charges are embedded within the spread, which can be wider than equivalent CFD spreads. CFDs often feature tighter quoted spreads, with commissions applied separately where relevant.
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Capital Gains Tax (UK)
In the UK, profits from spread betting are generally exempt from Capital Gains Tax. CFD profits are taxable, but allowable losses may be offset against gains in the same or future tax years. Tax treatment depends on individual circumstances and may change over time.
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Financing Costs
Both CFDs and spread betting may incur overnight financing charges when positions are held open beyond the trading day. These charges are typically calculated based on position size and prevailing interest rates and can materially affect the cost of holding positions over longer periods. In some circumstances, financing may result in a credit or a charge depending on the position held and interest rate differentials.
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Summary of Cost Differences
Ultimately, the cost profile of CFDs and spread betting depends on the instrument traded, position size, and holding period. Spread betting concentrates costs within the spread, while CFDs separate costs between spreads, commissions, and financing. Understanding how these costs are applied is central to comparing the two approaches.
CFDs vs Spread Betting: Leverage – Benefits and Risks
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Both CFDs and spread betting are leveraged products, meaning traders can gain exposure to a position larger than their initial deposit. Leverage operates in the same way for both products and is subject to UK regulatory limits for retail clients. While leverage can increase market exposure, it also significantly increases risk.
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How Leverage Works
Leverage allows a trader to open a position by depositing only a proportion of the full value of the trade, known as margin. Profit or loss is calculated on the full position size, not the initial margin deposited.
This structure applies equally to CFDs and spread betting.
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Potential Benefits of Leverage
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Capital Efficiency
Leverage allows traders to allocate capital across multiple positions rather than committing the full value of a trade upfront.
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Market Access
Leverage enables access to a wide range of markets, including indices, forex, commodities, and shares, that might otherwise require a higher initial capital outlay.
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Flexibility
Positions can be opened and closed quickly, allowing traders to respond to short-term market movements.
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Risks of Leverage
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Magnified Losses
Losses are calculated on the full position size, meaning even small adverse price movements can result in losses that exceed the initial margin deposited.
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Margin Calls and Forced Closures
If losses reduce available margin below required levels, positions may be closed automatically to limit further losses.
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Increased Volatility Exposure
Leveraged positions are more sensitive to market volatility, which can lead to rapid and unpredictable changes in account equity.
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Behavioural Risk
Managing leveraged positions can increase emotional pressure, potentially leading to poor decision-making and inadequate risk control.
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Key Point on Leverage
Leverage does not change the underlying tax treatment or cost structure of CFDs or spread betting. Instead, it increases both potential gains and potential losses in the same proportion. Effective risk management is therefore essential when using either product.
CFDs vs Spread Betting: Risk Management Considerations
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Effective risk management is essential when trading leveraged products such as CFDs and spread betting. While the instruments differ in structure and tax treatment, the core risk considerations are broadly the same for both approaches.
The points below outline commonly used risk management considerations rather than instructions or recommendations.
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Key Risk Management Considerations
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Stop-Loss Controls
Many traders use stop-loss mechanisms to limit downside exposure by defining a maximum loss on a position. The effectiveness of stop-loss controls can vary depending on market conditions and volatility.
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Position Size and Exposure
Position size directly affects risk. Larger positions increase both potential gains and potential losses. Managing exposure relative to available capital is central to controlling risk when using leverage.
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Diversification
Concentrated exposure to a single market or asset increases risk. Spreading exposure across different instruments or markets may reduce the impact of adverse movements in any one position.
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Risk-Reward Balance
Assessing potential downside relative to potential upside is a common way traders evaluate trades. Over time, outcomes are influenced not only by win rates, but also by the size of gains and losses.
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Market Volatility and Gaps
Rapid price movements and market gaps can cause losses to exceed expectations, particularly in fast-moving or illiquid markets. This risk applies equally to CFDs and spread betting.
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Behavioural Risk
Leveraged trading can increase emotional pressure, which may affect decision-making. Maintaining discipline and avoiding reactive behaviour is a recognised challenge in both CFD and spread betting trading.
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Key Risk Reminder
CFDs and spread betting are leveraged products and carry a high level of risk. Losses can exceed the initial deposit, and both products are not suitable for all investors.
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Conclusion: CFDs vs Spread Betting in the UK
CFDs and spread betting are closely related trading products that differ primarily in tax treatment, cost structure, and how profits and losses are treated over time. In the UK, spread betting is often favoured by profitable retail traders due to its tax treatment, while CFDs remain relevant where loss offsetting, professional structures, or specific trading requirements apply.
Neither approach is inherently better in all circumstances. Understanding how each product works in practice including costs, leverage, tax treatment, and risk, is central to making informed decisions about their use.
CFDs vs Spread Betting: Table of key differences
CFD vs Spread Betting: Conclusion
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In the UK, CFDs and spread betting are closely related leveraged trading products that differ primarily in tax treatment, cost structure, and how profits and losses are treated over time.
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Spread betting is often preferred by profitable UK retail traders due to its exemption from Capital Gains Tax and straightforward cost structure. CFDs remain an important alternative where loss offsetting is required, trading is conducted through professional or corporate structures, or where tax symmetry across gains and losses is relevant.
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Neither approach is inherently better in all circumstances. Understanding how each product works in practice, including costs, leverage, tax implications, and risk, is essential when comparing CFDs and spread betting.
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Both products involve leverage and carry a high level of risk. Losses can exceed the initial deposit, and neither product is suitable for all investors.
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Guardian Stockbrokers reviews
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I could not more highly recommend Guardian Stockbrokers, everyone has been brilliant. The attentiveness, training and technical detail provided, has enabled a fast track learning and an ability to manage the portfolio in a way that would far exceed my own capabilities. It is almost as though they own the positions themselves; via their due-diligence and proactive manner of continuous monitoring. Above and Beyond.
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Common questions about CFD trading and spread betting in the UK
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Where can I trade CFDs and spread betting in the UK?
Guardian Stockbrokers is an FCA-authorised UK stockbroker providing UK traders with access to CFD trading and spread betting via the IG trading platform, with direct UK-based broker support.
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Is spread betting better than CFDs in the UK?
In the UK, spread betting is often preferred by retail traders due to tax treatment, while CFDs are commonly used where loss offsetting or professional trading structures are required.
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How are CFDs and spread betting taxed in the UK?
Spread betting profits are generally exempt from Capital Gains Tax in the UK. CFD profits are taxable, but losses can be offset against gains, subject to individual circumstances.
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What markets can I trade using CFDs and spread betting?
Through Guardian Stockbrokers, UK traders can access global markets including shares, indices, forex, and commodities using CFDs and spread betting on the IG platform.
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How does Guardian Stockbrokers fit into CFD and spread betting trading?
Guardian Stockbrokers provides access to the IG trading platform with the same pricing and execution as trading directly with IG, combined with direct UK-based broker support.
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Tax laws are subject to change and depend on individual circumstances.