Introduction
The fact that both spread betting and CFD trading do not involve the ownership of the assets purchased has often led many to suppose that both are the same thing. While there exists strong similarities between both, they remain different from each other. Spread betting, for instance, requires over 20% margin for placing each bet while CFD trading requires only a 2% margin, and so on.
This work will therefore help you learn the difference between spread betting and CFD trading. You will also find in this work the list of the best spread betting brokers and the best brokers to choose from for CFD trading.
What is spread betting?
Spread betting is a speculative form of trading that allows investors to speculate on the future price movement of a given financial instrument and place a bet as their reward for every price movement from the moment the order is placed. For instance, a trader might forecast a downward trend for a given asset such as Gold and then proceed to bet for a downward movement for gold with a betting company. Assuming the price of gold is $1680, the bettor can bet to receive $10 for every point lost by gold in the market. So let’s say the price of gold gets to $1600 which means it has lost 80 points, then the bettor will have made $800 from the current fall.
On the contrary, the bettor will lose the same amount assuming the price of gold rose to $1760 after he placed such a bet.
Nonetheless, Spread betting requires a set out 20% margin for each bet placed on the platform. This means the company begins to cut off the negative positions once the loss equals 80% of the trader’s betting capital.
What is CFD trading?
CFD trading is a leveraged form of trading that allows traders to make predictions on the future prices of the underlying assets and take positions in the market based on such predictions. Here, traders tend to analyze a given financial instrument and project its future price target based on the prevalent market conditions. This leads them to either long or short the given asset using the leverage provided by the broker. In CFD trading, the trader receives as his rewards the price difference of the asset traded from his entry to the exit point.
Major difference between spread betting and CFD
| Spread betting | CFD trading |
| No commissions are charged for betting | Commissions are charged for trading |
| There is no tax charged for profits made from betting | Takes are charged from profits made from trading |
| The spreads are usually very high | The spreads are lower |
| Requires a margin of 20% | Requires a lower margin of 2% |
| Has an expiry date | Does not have an expiry date |
List of best Spread betting Brokers
- AvaTrade
- HFM
- Moneta Markets
- Pepperstone
- Vantage Markets
- FXCM
- City Index
- BDSwiss
- FP Markets
- IC Markets
- Activ Trades
- CMC Markets
List of Best brokers for CFD trading
- eToro
- Capital.com
- Hantec Markets
- FXTM
- XTB
- Exness
- Pepperstone
- Interactive Brokers
- Plus500
- ATFX
Is there any similarities between spread between and CFD trading?
Despite the fact that spread betting is quite different from CFD trading, there exists some remarkable similarities between them. We have highlighted these similarities below.
- Both are contracts entered into with a broker.
- There is no ownership of the assets bargained.
- They are speculative forms of trading.
- Leverage is offered for trading which helps traders to maximize their profits.
- Offers a good opportunity for hedging as the trader can either long or short the asset.
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