Spreadbetting v CFDs - what are the relative advantages/disadvantages?
I've had a look at the threads on this site on S/Bs & CFDs as well as the sites of the major providers and while it is is easy to find information on their relative advantages compared to conventional share buying, I've found it a lot more difficult to determine the factors that should be taken into account in deciding whether to use a CFD or a spreadbet.
I currently have a s/b account with IG, being an Irish resident means that I can only have controlled risk bets with them. Even though the spreads can be quite high, I'm happy enough to pay them as I tend to spreadbet fairly volatile shares and tend to hold a position for a number of months and thus I spreadbet in anticipation that my return will be significantly in excess of the spread paid. Given volatility of shares and the fact that I'm a relative notice means that it's important that I know in advance my maximum loss if everything goes pear-shared (risk of price gapping down eliminated) so I live to fight another day.
I would to expand my knowledge of CFDs / Spreadbets and would appreciate any information as to the factors that posters take into account in deciding whether to use a CFD or a spreadbet. The two products are quite similar compared to conventional share buying and seeing as some providers provide both products , clearly there is a market for both of them and thus I would be interested in knowing the target market for each product as maybe it would be more advantageous for me to use a CFD for certain trades. From my research the following would appear to be the main differences:
1. Taxation :
Gains from S/Bs are not taxable ; CFDs are taxable.
2. Interest
Interest payable / receivable in respect of long/short positions on CFDs; Spread bets have no interest implications.
3. Dividends
Dividends are receivable / payable in respect of long/short positions on CFDs; it would appear that prices on S/Bs are adjusted to take account of market price falling due to share going ex-dividend.
4. Spreads.
Initial spreads on CFDs are quite low compared to S/Bs; however in relation to S/Bs all charges are effectively paid upfront whereas
CFDs have interest as well.
5. Duration
Spread bets being bets last for a fixed period though normally they can be rolled over at a cost whereas CFDs like shares have no maturity.
6. Prices
CFD prices have to be the actual market prices, whereas s/b companies have discretion.
Are there other factors to be considered e.g.
1. Markets covered
Are the same products covered e.g. shares/bonds/indices/FX. S/Bs would appear to have a more extensive product range. Within shares, are the same shares covered by a provider of both CFDs and S/Bs?.
2. Minimum /maximum amounts of shares
Are there any differences between the mimimum / maximum amounts of shares to be bought/ bet in regard to the 2 products.
3. Stop losses.
Are their differences in terms of the operation of stop losses.
I appreciate that there may be other factors that I haven't considered and I plan to contact the providers to see if I can obtain further information in this regard. I will post any feedback here.
To date, I've been a lurker on this site but have been impressed by the quality of the posts and the helpfulness of other posters.
Regards,
GKP
I've had a look at the threads on this site on S/Bs & CFDs as well as the sites of the major providers and while it is is easy to find information on their relative advantages compared to conventional share buying, I've found it a lot more difficult to determine the factors that should be taken into account in deciding whether to use a CFD or a spreadbet.
I currently have a s/b account with IG, being an Irish resident means that I can only have controlled risk bets with them. Even though the spreads can be quite high, I'm happy enough to pay them as I tend to spreadbet fairly volatile shares and tend to hold a position for a number of months and thus I spreadbet in anticipation that my return will be significantly in excess of the spread paid. Given volatility of shares and the fact that I'm a relative notice means that it's important that I know in advance my maximum loss if everything goes pear-shared (risk of price gapping down eliminated) so I live to fight another day.
I would to expand my knowledge of CFDs / Spreadbets and would appreciate any information as to the factors that posters take into account in deciding whether to use a CFD or a spreadbet. The two products are quite similar compared to conventional share buying and seeing as some providers provide both products , clearly there is a market for both of them and thus I would be interested in knowing the target market for each product as maybe it would be more advantageous for me to use a CFD for certain trades. From my research the following would appear to be the main differences:
1. Taxation :
Gains from S/Bs are not taxable ; CFDs are taxable.
2. Interest
Interest payable / receivable in respect of long/short positions on CFDs; Spread bets have no interest implications.
3. Dividends
Dividends are receivable / payable in respect of long/short positions on CFDs; it would appear that prices on S/Bs are adjusted to take account of market price falling due to share going ex-dividend.
4. Spreads.
Initial spreads on CFDs are quite low compared to S/Bs; however in relation to S/Bs all charges are effectively paid upfront whereas
CFDs have interest as well.
5. Duration
Spread bets being bets last for a fixed period though normally they can be rolled over at a cost whereas CFDs like shares have no maturity.
6. Prices
CFD prices have to be the actual market prices, whereas s/b companies have discretion.
Are there other factors to be considered e.g.
1. Markets covered
Are the same products covered e.g. shares/bonds/indices/FX. S/Bs would appear to have a more extensive product range. Within shares, are the same shares covered by a provider of both CFDs and S/Bs?.
2. Minimum /maximum amounts of shares
Are there any differences between the mimimum / maximum amounts of shares to be bought/ bet in regard to the 2 products.
3. Stop losses.
Are their differences in terms of the operation of stop losses.
I appreciate that there may be other factors that I haven't considered and I plan to contact the providers to see if I can obtain further information in this regard. I will post any feedback here.
To date, I've been a lurker on this site but have been impressed by the quality of the posts and the helpfulness of other posters.
Regards,
GKP
