If you are trading in the UK, you have a choice that most of the world doesn't have: Spread Betting.
But every day, I see UK traders opening CFD accounts because they saw an ad on Instagram or followed some guru's recommendation. They are literally throwing money away. This guide is the honest truth about which one you should be using.
The Elephant in the Room: Taxes
Let's get straight to the point. Spread betting is currently tax-free in the UK. No Capital Gains Tax (CGT). No Stamp Duty.
CFDs (Contracts for Difference), on the other hand, are subject to Capital Gains Tax. If you make a £50,000 profit this year on CFDs, you’re going to be writing a very large check to HMRC. If you made that same £50,000 through spread betting, every penny is yours to keep.
So, Why Does Anyone Use CFDs?
If spread betting is tax-free, why do CFDs even exist in the UK? There are a few reasons:
- Loss Offsetting: Because CFDs are taxable, you can offset your trading losses against other capital gains. If you lose £10,000 on CFDs, you can reduce your tax bill elsewhere. You cannot do this with spread betting.
- Professional Tools: Some institutional-grade platforms only support CFDs. If you need Direct Market Access (DMA) to see the order book and interact with other traders' orders, you'll likely need a CFD account.
- Global Standard: Most educational content is written for a global audience. When Americans or Europeans talk about "trading," they are usually talking about CFDs or Options.
The Cost Difference
The way you pay is different.
- Spread Betting: You pay via the "spread"—the difference between the buy and sell price. There are usually no separate commissions.
- CFDs: You often pay a tighter spread, but you pay a commission on every trade (e.g., £10 per trade).
For most retail traders, the spread betting model is simpler and often cheaper once you factor in the tax savings.
Which One Is Right For You?
If you are a retail trader in the UK with an account size under £100,000, Spread Betting is almost always the right choice. The tax-free status is a massive "edge" that you shouldn't ignore.
If you are a professional trader, or you need specific DMA execution for high-frequency trading, then CFDs start to make sense.
My Advice
Don't let the marketing fool you. Most "free" CFD platforms make their money by widening the spread anyway.
If you're starting out, stick to Spread Betting. Keep your profits. Keep it simple. And keep your eye on the only thing that matters: your equity curve.
Comparison Table
| Feature | Spread Betting | CFDs | | :--- | :--- | :--- | | UK Tax | Tax-Free | CGT Applicable | | Costs | Spread Only | Spread + Commission | | Ownership | Derivative | Derivative | | Leverage | 30:1 (Retail) | 30:1 (Retail) |
Confused about the rules? Read our full Spread Betting vs CFDs comparison for the technical deep dive.