Spreadbetting v. CFD

[chezlaw]

Hello There . Only Joined here today . Started trading this year . Switched to spread betting about 6 weeks ago to avoid commission , stamp duty and capital gains tax on the regular share dealing . After reading about half of the posts in this thread . Some providors are better than others . I'm relitively happy with my providor so far , they are a dedicated spread bet providor , don't do sports betting or regular share dealing . I've heard some scare stories about some providers . One of the things I don't like about one provider is the automatic stop losses they provide which can close you out at an unnecessary loss very quickly . I have to manually set stop losses , which I normally don't do .
I have one rolling bet running for nearly 6 weeks now and i'm going to leave it running until i'm well back into profit .
I look at the spread betting as a tool .

Good to hear I'm not the only onw who doesn't use stops. Maybe worth trying IG or GFT they don't require us to use stops.

 

[tpearl]

Good answer Trader333

Following on from that, does anyone know what the legal/regulatory differences are between a CFD and a spreadbet. It's always intrigued me that a 'CFD' pays tax and a 'spreadbet' does not, when to all intents and purposes they are the same (for UK citizens anyway). Any tax lawyers out there?

cheers

A CFD should replicate the exact price spread (buy & Sell prices) as you would see if trading the underlyig product. The rational for this is simple. When you buy or sell a CFD the broker actually executes the same trade on the underlying share,asset etc, so that they are not betting against you. From several posts that I have seen people think this is because they are 'great CFD traders' and the broker is trying to mirror their performance. This is not the case!! The broker makes money from execution fees and financing costs. They hedge themselves on EVERY trade you make to negate any risk writing you a CFD would incur. This is known as delta hedging and prevents them from taking on 'naked' positions (Massively risky for any broker). Where as spread betting tends to give you a worse price as the spreads tend to be larger. Having never worked for a broker who catered for spreads I am unsure of how these are hedged but probably very similar to the process above. As far as UK taxation goes, neither incurs SDRT (Stamp duty) and spread betting does not incur corporation tax however, that means that you can not off set any losses against future corporation tax liabilities.

Hope this helps