CFD Trading vs Spread Betting: A Detailed Comparison of Two Popular Trading Methods

If you’ve been looking into ways to trade the markets without actually owning shares or other assets, you’ve probably come across CFD trading and spread betting.

Both let you try to profit from how prices move – whether they go up or down – across markets like stocks, forex, and commodities.

And while they look quite similar, there are some important differences to know about.

Understanding the basics of CFD vs spread betting can help you make smarter choices, especially when it comes to things like risk, tax, and how each method works behind the scenes.

Depending on where you live, how you like to trade, and what your goals are, one might suit you better than the other.

In this guide, we’ll walk through what CFD trading and spread betting are, how they work, and what sets them apart.

Whether you’re just starting out or already trading and want to explore new options, this comparison will help you understand both methods more clearly. 

If you want to try out both methods for yourself, PU Prime lets you trade CFDs and explore global markets in one place.

What is CFD Trading?

CFD trading stands for Contract for Difference trading.

It’s a way to trade on the price movement of an asset, like a share, index, currency pair, or commodity, without actually owning it.

Instead, you’re agreeing to exchange the difference in the asset’s price from when you open the trade to when you close it.

Let’s say you think a stock’s price is going to rise. You open a long position (buy). If the price does go up, you make a profit based on the difference between your buy price and the sell price. If the price falls instead, you take a loss.

The same works in reverse. If you think the price will drop, you can open a short position and aim to profit from the fall.

One of the key features of trading CFDs is leverage. This means you can control a larger position with a smaller upfront amount, known as margin.

While this can boost your potential profits, it also increases your risk. Losses can add up just as quickly, especially in fast-moving financial markets.

CFDs also give you access to a wide range of underlying assets, and you can trade across global markets from one platform.

They’re flexible, don’t have an expiry date, and can be used to trade in either direction, up or down.

Because CFD trading is a type of speculative trading, it’s important to manage risk carefully. Most trading platforms, like PU Prime, for example, offer risk management tools like stop-loss orders or account limits to help you stay in control.

What is Spread Betting?

Spread betting is a way to trade on the movement of financial markets without owning the actual underlying asset.

Like CFD trading, you’re speculating on whether the market price of something, like a stock, index, or currency pair, will go up or down.

But instead of buying or selling a contract, you’re placing a bet per point of movement.

Here’s how it works: if you think a price will rise, you bet a certain amount for every point it goes up. If it does go up, you earn that amount times the number of points it moved.

If it drops instead, you lose that same amount per point. You can also bet on prices falling by placing a sell bet.

One of the biggest appeals of spread betting is how it’s taxed in some places. In the UK and Ireland, for example, it’s usually tax-free for individuals, meaning no capital gains tax or stamp duty on profits.

That’s because it’s classified as betting, not investing. But this tax benefit depends on your individual circumstances, and local tax laws vary.

It’s also worth noting that spread betting isn’t available everywhere. For example, it’s not allowed for retail traders in the United States.

Spread betting also involves leverage, allowing you to trade larger positions with less upfront capital. This increases both your potential profits and your risk.

If the market moves against you, losses can add up quickly. Like CFDs, most platforms offer risk management tools such as stop-loss orders and trade limits to help you stay in control.

Spread betting is available on a wide range of financial instruments, including shares, indices, currencies, and commodities.

It’s flexible, fast, and offers opportunities to trade rising and falling markets, but it’s important to understand the risks and regional rules before getting started.

CFDs vs Spread Betting Key Differences

While CFD trading and spread betting are both ways to speculate on markets without owning the underlying asset, they’re not the same, especially when it comes to tax, structure, and how trades are handled behind the scenes.

1. Tax Treatment

One of the most talked-about differences is how each method is taxed. In the UK, spread betting is generally tax-free for individuals, with no capital gains tax or stamp duty on profits. CFDs, however, are treated as investments, so you may need to pay capital gains tax depending on your individual circumstances.

You also don’t pay stamp duty on CFDs, but the tax difference can be a deciding factor for many traders. Keep in mind, spread betting is not available in all countries, including the US.

2. Expiry Dates

Most CFD contracts don’t have an expiry date, meaning you can hold a position for as long as you like (subject to overnight financing fees).

Spread bets, on the other hand, often come with set expiry periods (daily, weekly, or quarterly), although many platforms now offer rolling positions that behave more like CFDs.

3. Currency Denomination

With spread betting, trades are usually placed in your local currency, and profits are based on the number of points moved.

In CFD trading, positions are based on the notional value of the asset and are typically priced in the currency of the underlying market.

This can affect your exposure to currency risk, especially when trading international instruments.

4. How Trades Are Structured

In spread betting, you’re placing a bet per point of movement, for example, £5 per point.

In CFDs, you’re entering a contract that tracks the price movement of an asset. Both allow you to go long or short, but the structure and calculation of profit and loss differ slightly.

5. Use Cases and Availability

Spread betting is often more popular with UK-based retail traders due to its tax efficiency, simplicity, and lower entry costs.

CFD trading is available in more regions globally and tends to appeal to a wider range of users, including those with corporate accounts or more advanced trading strategies.

6. Regulation and Reporting

Because CFDs are treated as financial products, they come with more detailed reporting and may be subject to different risk warnings, depending on where you live.

Spread betting, while regulated in the UK, is legally classified as betting, which affects how it’s reported for tax purposes.

In short, both methods let you speculate on the same markets with similar tools, but the differences in tax, trade structure, and availability can have a big impact on which one is right for you.

Similarities Between CFDs and Spread Betting

Even though there are some key differences between CFDs and spread betting, they do have a lot in common.

At their core, both are forms of speculative trading, meaning you’re aiming to profit from how an asset’s price moves, rather than owning the asset itself. Here are some of the main similarities:

1. You’re Trading on Price Movement, Not Ownership

With both CFDs and spread betting, you’re not buying or selling the actual share, currency, or commodity.

You’re simply speculating on whether the underlying asset will rise or fall. This means you can trade in either direction, going long if you think the price will rise, or short if you think it will fall.

2. Same Leverage

Both methods offer access to leverage, which means you can control larger positions with a smaller upfront amount (called margin).

This can increase your potential returns, but also raises your risk if the market moves against you. The same leverage rules often apply depending on your platform and region.

3. Short-Term and Long-Term Trading Styles

You can use either approach to suit your trading style.

Whether you want to open a quick trade over a few hours or hold a longer-term position, both CFDs and spread betting give you that flexibility, especially when using rolling contracts or platforms without strict expiry terms.

4. Speculative and High Risk

Both are considered high-risk trading methods. Because of the use of leverage and fast-changing markets, it’s possible to lose more than your initial stake if proper precautions aren’t in place.

That’s why they’re best suited to traders who understand the risks and are using a clear strategy.

5. Risk Management Tools Are Available

Most trading platforms offer similar risk management tools for both CFDs and spread betting.

These include stop-loss orders, guaranteed stop-losses (on some platforms), take-profit levels, and margin alerts, all designed to help you stay in control if the market moves unexpectedly.

So while the structure and tax treatment may differ, both CFDs and spread betting give you access to the same markets, similar tools, and the opportunity to trade in a way that fits your personal strategy, as long as you understand the risks involved.

How Taxes Affect CFD Trading and Spread Betting

Spread betting is generally tax-free in the UK for individual traders, with no capital gains tax and no stamp duty, which makes it appealing for tax efficiency.

But this depends on your individual circumstances and may not apply to corporate or professional accounts.

CFD trading, on the other hand, is treated as investing. You may need to pay capital gains tax on profits, though you can also offset losses for tax purposes.

Like spread betting, there’s no stamp duty, which is one advantage over traditional trading.

Tax laws vary by country, and spread betting isn’t legal everywhere, so it’s always best to check the rules in your region or speak to a tax professional.

Trading Mechanics: Opening and Closing Positions

With CFDs and spread betting, you can open a long position if you think the market price will rise, or use short selling if you expect it to fall.

In both cases, your profit or loss is based on the difference between the buy price and the sell price, multiplied by the size of your position.

In spread betting, you bet a certain amount per point movement, for example, £5 per point.

If the price moves 20 points in your favour, your total profit is £100. If it moves against you, you lose £100.

In CFD trading, your profit is based on how much the underlying asset moved, multiplied by the number of contracts.

If you opened a trade at £100 and sold at £120, you’d make £20 per CFD (before costs).

Both methods may involve overnight financing charges if you hold positions open beyond a day.

These are costs for keeping leveraged trades running, and they can eat into profits if you’re not careful.

Opening and closing trades is straightforward on most platforms, but make sure you understand the numbers before placing a trade. 

Risk Management Strategies

Whether you’re trading CFDs or using spread betting, risk management is crucial.

Both methods involve leverage, which means you can control larger positions with a smaller amount of capital. While this increases your potential profits, it also magnifies your losses if the market moves against you.

To help manage this risk, most platforms offer built-in tools. A common one is the stop-loss order, which automatically closes your position if the market hits a certain price.

This helps limit losses and prevents emotional trading decisions. You can also set margin limits, which restrict how much of your available funds are committed to open positions.

Your trading style plays a big role here. If you’re a more conservative trader, you might choose tighter stop-loss settings and smaller position sizes.

More aggressive traders may take on higher leverage and leave positions open longer, but this approach requires careful monitoring and experience.

The key is knowing your risk tolerance and using the tools provided to protect your capital. Regardless of which method you choose, managing your downside is just as important as aiming for potential profits.

Advantages and Disadvantages

CFD trading and spread betting each come with their pros and cons, depending on your goals, tax situation, and trading style.

One advantage of spread betting is that in places like the UK, profits are usually tax-free, as it is classified as gambling rather than investing.

There’s also no stamp duty since you don’t own the underlying asset.

That said, the wider spread between the buy and sell prices can affect your bottom line, and not all countries allow spread betting due to regulatory differences.

CFD trading is more widely available and typically offers direct market access, meaning you get prices that closely match the underlying market.

This can make CFDs more suitable for short-term trading and strategies that require tighter spreads.

However, CFDs may come with commissions, especially on shares, and you’ll likely be subject to capital gains tax on profits, depending on your local tax laws.

Both methods charge overnight financing fees for positions held after market close, and both require careful attention to fees and leverage settings to avoid unexpected losses.

Practical Examples of CFD Trading and Spread Betting

Let’s say you believe a currency pair like EUR/USD will rise in value.

CFD Trade Example (Using 0.10 Lot):

You decide to open a long CFD position of 0.10 lots (which equals 10,000 units of the base currency) at a price of 1.1000. If the market moves up to 1.1050, that’s a 50-pip gain.

• For a 0.10 lot position, each pip is worth approximately $1 USD (depending on your account currency and broker).
• A 50-pip move in your favour results in a $50 profit before any costs like overnight financing or spreads.
• If the price had dropped by 50 pips instead, you’d face a $50 loss.

This shows how trade size (in this case, 0.10 lot) directly affects your profit and loss. The same principles apply whether you’re trading forex, indices, or commodities via CFDs.

Spread Betting Example

Now let’s take the same scenario with spread betting. You place a buy bet of $5 per point that EUR/USD will go up. If the market rises 50 points (pips), you earn:

• $5 × 50 = $250 profit
• If the market moves against you by 50 points, you lose $250

Both methods involve similar mechanics when it comes to predicting price direction, but how your returns are calculated varies (per lot in CFD trading and per point in spread betting).

No matter which way you trade, it’s a good idea to use stop-loss orders and keep an eye on your leverage and margin, especially when markets are moving quickly.

Regulations and Availability

Whether you can trade CFDs or spread bet really depends on where you live. In the UK, both are legal and popular with traders.

Spread betting even has some tax perks for individuals, since it’s treated more like gambling than investing.

But in places like the United States, spread betting isn’t allowed at all, and CFD trading is heavily restricted for everyday (retail) investors.

In Australia and much of Europe, CFD trading is legal but tightly regulated.

There are rules around how much you can borrow (leverage), and providers must give clear warnings about the risks. These rules are designed to protect you from losing more than you can afford.

Always check the rules in your country before diving in.

Make sure you’re using a platform that’s properly licensed and regulated; that means better protection for your money, clearer fees, and peace of mind that you’re not trading in a grey zone.

PU Prime is fully regulated, so you can trade with confidence knowing you’re using a platform that follows the rules and puts safeguards in place for its members.

Which One’s Right for You?

If you’re choosing between CFD trading and spread betting, there’s no one-size-fits-all answer. The best option comes down to your location, goals, and how involved you want to be in your trading.

Spread betting might be a better fit if you live in a place like the UK and want a more tax-efficient way to trade.

CFDs, on the other hand, offer access to more markets, tighter spreads, and features like direct market access, which some traders prefer.

Both methods let you speculate on the rise and fall of financial instruments like shares, commodities, and currency pairs.

And both come with risk, especially when using leverage. That’s why strong risk management is crucial, no matter which path you take.

Before you start, take a moment to think about:

• Your trading style
• How much time you want to spend on it
• The rules and tax treatment in your country

And if you’re ready to try CFD trading, PU Prime offers a trusted platform with tools for both beginners and experienced traders.

You can explore a wide range of markets, set up stop-losses, and learn as you go, all in one place.

CFD vs Spread Betting FAQs

Can I trade forex using CFDs or spread betting?

Yes, both methods let you trade forex. You’re not buying actual currencies. You’re just speculating on whether one currency will rise or fall against another.

Which is safer: CFDs or spread betting?

Neither is inherently safer. Both use leverage, which means your gains (and your losses) can grow quickly. The key is how you manage risk: use stop-loss orders, only trade what you can afford to lose, and don’t over-leverage.

Is one better than the other?

It depends on your personal situation. If you’re in the UK and care about tax efficiency, spread betting might appeal.

If you want access to more markets or features like direct market access, CFDs may be better suited. It’s about what works best for you.

Can I use the same strategies for both?

Yes. Strategies like day trading, swing trading, or trend-following work with both. What matters more is your comfort with risk and how hands-on you want to be.