Potential new trader saying hello :)

Rippie

Newbie
2 0
Hi all,

i am a potential new trader I think :) i have been interested in financial markets for a couple of years now but never really took the plunge.
Recently i got a bonus from work and some money back in tax (wohoo) that just sit in my daily bank account and do nothing. I figured i would take 25% of that and invest in a few stocks.
I do not yet know which ones but i will have a look around some British companies perhaps :)

anyway one question i do have is are CFD shares much worse than actual shares/stocks??
 

1nvest

Well-known member
305 109
anyway one question i do have is are CFD shares much worse than actual shares/stocks??
Why not try spread betting rather than CFD? you will likely have the same broker doing both and the former is tax free
 

Rippie

Newbie
2 0
Why not try spread betting rather than CFD? you will likely have the same broker doing both and the former is tax free
Please excuse my ignorance but what is the difference between spread betting and CFD shares? I thought they were the same thing?
Buying an actual stock/share in coca cola and you pay tax on earnings and you get dividens.
i thought CFD shares where a derivative version of the share but you never actually own the actual stock.
 

1nvest

Well-known member
305 109
Please excuse my ignorance but what is the difference between spread betting and CFD shares? I thought they were the same thing?
Buying an actual stock/share in coca cola and you pay tax on earnings and you get dividens.
i thought CFD shares where a derivative version of the share but you never actually own the actual stock.
Similar, in the sense that in both cases you will not own the stock. They are both derivative products, and are leveraged. Both allow you to trade either long or short. any broker offering CFDs will likely offer a spreadbet. A CFD however is taxable. you will pay tax on any profits, the same as physically buying the shares, you pay CGT on your gains.
a spreadbet is not taxable. any profit is tax free.
the choice between ownership and spreadbet will likely come down to how long you intend to own the share for. You did say "invest" however im assuming in a forum such as "trade" 2 win there is an element to market timing in your choice...

you will pay interest overnight on the spreadbet, which is often extremely small, but will add up if you owned the share for months and months. they net each other out over the long term, spreadbet is the clear winner in the short term

i found little difference between CFD and spreadbet in terms of functionality. but swing trading, on say a weekly timeframe, rather than just holding and holding a spreadbet is a great alternative.
try it. a reputable (if there really is such a thing) broker will offer both, and the spread on the spreadbet is often negligible compared to the spread on the CFD or share these days.

dont get me wrong, im not trying to sway you. but your initial question struck me as an odd "which is better" question.
you would only use CFD if you were going to short, and if you were going to short, the chances are that will be far far shorter timeframe than holding long. Therefore there is only one winner if you are going short. spreadbet.
if you are going long, why even consider CFD, you pay tax either way. so the choice normally is which is better spreadbet or holding shares. and that typically comes down to timeframe

let me know if you have any questions, happy to help. or better yet, try them out
get a demo account with IG index and try both. then do the maths.
 
 
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