The Big Differences of CFD Trading and Spread Betting
May 3, 2013 9:50 am
What are their Common Grounds?
On the one hand, it is essential to know their similarities so that traders will have a baseline if they are really comparing two (2) products that may serve as alternatives to each other. In this regard, we all know that they are forms or methods of trading that are highly leveraged. What this means is that through leverage, traders can have multiple times earnings of their initial position. In other words, there is no upward limit on the amount that a trader can take home, in relation to the amount of its opening position.
However, they are both highly risky too. While it has an unlimited upward potential for earnings, it also has an unlimited down side threats that may form part of a trader’s liability.
What are their major differences?
On the other hand, while understanding their similarities is essential, it is by knowing their differences that we can have some actual definitions. This way, we can really distinguish one from the other.
Firstly, among the major differences of CFD trading with spread betting is their tax treatment. The latter is more advantageous when it comes to taxation. This is because spread betting in United Kingdom is treated as a gambling, rather than an investment. Hence, there are not assets that are being interchanged from different hands of the traders. In this regard, they do not need to pay any capital gains at all on the profits that they will earn from their spread betting activities.
In CFD trading, it is the other way around. It has capital gains tax liability because it is treated as an investment. However, this may also serve as an advantage over spread betting. This is because losses from the transactions may be carried applied for offsetting. It may also be used in order to provide some relief to the traders when they earn some profits in the future. Hence, they can reduce their overall liability for the income that they will get from trading these contracts for difference.
Aside from the taxation, there are still other fundamental differences between these two that traders need to understand. This is because these will guide them in having a good choice on which instrument they must use.
What are their Common Grounds?
On the one hand, it is essential to know their similarities so that traders will have a baseline if they are really comparing two (2) products that may serve as alternatives to each other. In this regard, we all know that they are forms or methods of trading that are highly leveraged. What this means is that through leverage, traders can have multiple times earnings of their initial position. In other words, there is no upward limit on the amount that a trader can take home, in relation to the amount of its opening position.
However, they are both highly risky too. While it has an unlimited upward potential for earnings, it also has an unlimited down side threats that may form part of a trader’s liability.
What are their major differences?
On the other hand, while understanding their similarities is essential, it is by knowing their differences that we can have some actual definitions. This way, we can really distinguish one from the other.
Firstly, among the major differences of CFD trading with spread betting is their tax treatment. The latter is more advantageous when it comes to taxation. This is because spread betting in United Kingdom is treated as a gambling, rather than an investment. Hence, there are not assets that are being interchanged from different hands of the traders. In this regard, they do not need to pay any capital gains at all on the profits that they will earn from their spread betting activities.
In CFD trading, it is the other way around. It has capital gains tax liability because it is treated as an investment. However, this may also serve as an advantage over spread betting. This is because losses from the transactions may be carried applied for offsetting. It may also be used in order to provide some relief to the traders when they earn some profits in the future. Hence, they can reduce their overall liability for the income that they will get from trading these contracts for difference.
Aside from the taxation, there are still other fundamental differences between these two that traders need to understand. This is because these will guide them in having a good choice on which instrument they must use.
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