One of the main questions for UK traders to answer before they start trading is whether to focus on CFDs or spread betting, as well as whether to use a desktop or a mobile when trading. Even though these two types of trading are similar in many ways, they are fundamentally different and require different strategies.
In an attempt to set matters straight, we did a deep dive into the world of online trading. And through many hours of research and contact with a range of trading professionals, we now feel comfortable providing an overview of these two types of trading. And hopefully, we can help you decide whether to focus on CFD trading or spread betting.
What is the Difference Between the Two?
Let’s start with the basics, and explain what sets CFDs apart from spread betting. As mentioned, CFDs and spread betting share many similarities and many of the best CFD brokers in the UK also provide spread betting.
The main similarity is that both CFD trading and spread betting are speculative forms of trading, meaning that you never own the underlying assets that you’re trading, but rather speculate on price movements.
Also, both forms of trading can be conducted on the platforms Metatrader 4 and Metatrader 5 – two of the most technically advanced trading software in the world. And both forms of trading are available on both mobile devices and desktops.
The main difference lies in the name of these forms of trading. You see, CFD is short for Contract for Difference, and when trading CFDs you buy a contract from a broker based on the underlying assets’ market value. Depending on if you think the price of the asset will increase or decrease you buy a bid or an ask contract. This is considered a form of financial trading and regulated as such, similar to stock trading on the London Stock Exchange (LSE).
Spread betting, on the other hand, works more like regular betting on sports, ie. your job is to bet money on whether you think the value of an asset, such as a stock, will increase or decrease in value. Because of this, spread betting is not regulated as trading but as betting, and this is maybe the most important difference because that means that spread betting is tax-free, unlike CFD trading.
CFD – Pros and Cons
The main benefit of CFD trading is that it’s a legitimate form of online trading offered by a long list of reputable online brokers. In fact, CFD trading is one of the most popular ways to trade online these days.
Also, since CFD brokers are strictly regulated by the Financial Conduct Authority (FCA), they are very safe to use. When trading CFDs, you also get access to highly technological trading tools such as platforms, automated trading robots, and even copy trading platforms where you can copy more successful traders step by step.
The downside is, as mentioned, that CFDs are regulated as financial trading meaning you have to pay taxes on all profits made, it’s also quite complicated to get started if you lack experience. Also, CFDs tend to come with higher fees (spread) and more limitations than spread betting.
Spread Betting – Pros and Cons
The main benefit of spread betting is its similarity to regular sports betting. So if you have experience with sports betting, you will quickly wrap your head around how spread betting works. In turn, this will save you time that you would otherwise have to spend on learning the ins and outs of betting as well as how the financial markets operate.
In addition, spread betting is regulated in the same way that sports betting is, which – as we mentioned – means that you never have to pay taxes on the profits you make.
The downside with spread betting is that it can feel less serious than CFD trading, and in many ways, it’s more complicated than regular sports betting because you have to have an understanding of how financial markets work and what affects the value of stocks, cryptocurrencies, currency pairs, etc.
So what should you focus your efforts on – CFDs or spread betting?
Based on our research, everyone who is serious about trading and wants to make real profits from real financial markets should focus on CFD trading. Even though the learning curve is quite steep and long, it will be worth it in the end.
If you, however, have experience with sports betting and have somewhat of an understanding of what affects the value of a financial instrument, you should consider spread betting.
In the end, spread betting is often offered by CFD brokers which means that you don’t actually have to decide on one or the other since you can easily combine the two. This is also possible since you use the same platforms and tools for both types of trading.