Spread betting vs CFDs is mostly a question of format and tax, not risk. Both let UK traders speculate on prices rising or falling without owning the asset, both are leveraged under the same retail limits, and both can lose money quickly. The differences sit in how you stake, how you pay and how HMRC treats the result.
Quick answer: what is the difference between spread betting and CFDs?
A spread bet is staked in pounds per point; a CFD is traded in contracts or units, often in the market’s own currency. Spread bet profits are generally free of Capital Gains Tax, while CFD gains fall under it but losses can be offset. Leverage limits and risk are the same.
What the two products have in common
A contract for difference (CFD) is an agreement to exchange the difference in a market’s price between opening and closing a trade. A spread bet does the same job, but your stake is a bet in pounds for each point the price moves. Our guide on what spread betting is and how the stake works covers the mechanics in full.
In the UK, the FCA’s permanent rules for retail CFDs also cover financial spread bets. That means the same leverage limits, the same 50% margin close-out and the same negative balance protection, so you cannot lose more than the funds in your account but can lose all of them.
- Both are leveraged: a small margin controls a large exposure, which magnifies losses as much as gains.
- Both go long or short: you can profit or lose from a rise or a fall.
- Both are priced through a spread: you buy above and sell below the market price.
- Neither gives you ownership: no shares, no voting rights, no physical metal.
Spread betting vs CFDs: the comparison table
| Factor | Spread bet | CFD |
|---|---|---|
| Stake format | £ per point | Contracts or units |
| Profit and loss currency | Usually pounds | Often the market’s currency |
| Main cost | The spread | The spread, plus commission on some share CFDs |
| Holding overnight | Funding charge on rolling bets | Funding charge on undated CFDs |
| Tax on profits | Generally no CGT or stamp duty | CGT may apply; no stamp duty |
| Tax relief for losses | None | Allowable losses can offset gains |
| Retail leverage limits | 30:1 to 2:1 | 30:1 to 2:1, the same |
| Where offered | Mainly UK and Ireland | Many more countries |
Tax is the line most people focus on, so it needs care. Spread betting profits are generally free of Capital Gains Tax and stamp duty for UK residents, but tax treatment depends on your circumstances and can change.
Stake format and pricing
With a spread bet you choose a stake such as £2 a point, and the profit or loss is that stake times the points moved. With a CFD you choose a number of contracts or units, and the value of one point depends on the contract size set by the provider.
The currency matters more than many beginners expect. A CFD on a US index or a dollar-priced commodity often settles in dollars, so a change in the exchange rate can add to or eat into the result. Our UK beginner’s guide to forex trading explains how currency pairs move.
Costs
Both products build the main cost into the spread. On share CFDs some providers charge a commission instead of, or as well as, a wider spread. Both charge overnight funding on positions held past the daily cut-off, so compare the provider’s key information documents rather than headline spreads.
Tax: the real difference and its trade-off
HMRC’s view is that a person placing a spread bet is not normally carrying on a trade, so profits are not taxed and losses get no relief. CFDs are different: HMRC’s Capital Gains Manual on contracts for differences treats them as financial futures, with the outcome counted as a chargeable gain or an allowable loss when each contract closes.
That cuts both ways. In a profitable year, CFD gains go into your Capital Gains Tax calculation; in a losing year, CFD losses can be set against other gains. Spread betting losses cannot, which is easy to overlook while you are only thinking about profits.
If your trading looks like a business, HMRC may treat it as trading income instead. Rates, allowances and the rules themselves change, so check the current position with HMRC or a qualified adviser. Tax should never be the reason to take a trade.
A worked example: the same trade both ways
Example: a hypothetical UK trader has a £5,000 account and risks 1%, or £50, on an index trade with a 50-point stop.
- As a spread bet. £50 ÷ 50 points = £1 a point.
- As a CFD. If one contract is worth £1 a point, they trade 1 contract. Same exposure, same £50 risk.
- Margin. Major indices are capped at 20:1, so about 5% of roughly £8,000 of exposure, around £400, is held either way.
- If the stop is hit. Both lose £50, plus spread and any slippage.
Now imagine two tax years. In year one their closed trades net £2,000 up; in year two, £2,000 down. As spread bets, neither year is likely to affect their tax. As CFDs, the year-one gain counts towards Capital Gains Tax with any other gains, and the year-two loss can be reported and set against gains.
The trading risk is identical in both cases. Our step-by-step method for calculating position size from your stop works for either product.
Who each tends to suit
Neither is better in general, and we do not recommend one over the other. The fit depends on how you think about stakes and where you live.
Spread betting tends to suit
- UK or Irish residents who think in pounds per point.
- Traders who want results in pounds on foreign markets without a currency step.
- People who accept that losses get no tax relief.
CFDs tend to suit
- Traders outside the UK and Ireland, where spread betting is rarely offered.
- People who want losses recognised for Capital Gains Tax.
- Traders who prefer sizing in contracts or units, as on many trading platforms.
The rules on margin and leverage for UK traders apply equally to both, as set by the ESMA product intervention measures the UK kept in its own rules: 30:1 on major currency pairs, 20:1 on major indices and gold, down to 2:1 on cryptocurrencies.
Common mistakes when choosing
- Choosing on tax alone. A tax-free product does not make a losing strategy profitable.
- Assuming one is safer. The leverage limits and the risk of losing money are the same.
- Ignoring currency on CFDs. Exchange-rate moves can change the result.
- Comparing headline spreads only. Funding and commission can cost more over time.
- Opting up to professional status. It removes retail protections such as the leverage limits.
Frequently asked questions
Is spread betting or CFD trading riskier?
Neither. In the UK both carry the same retail leverage limits, margin close-out and negative balance protection. The risk comes from your position size and stop, not the product.
Can you offset spread betting losses against tax?
No. HMRC does not normally treat spread betting as a trade, so profits are untaxed and losses get no relief. CFD losses, by contrast, can usually be set against capital gains.
Do you pay stamp duty on CFDs or spread bets?
Generally not, because neither involves buying the underlying shares. Tax rules can change, so check HMRC’s current guidance for your situation.
Can I trade indices with both?
Yes. Our guide to trading indices in the UK shows how either product fits an index trade, from session times to sizing.
Next steps
Whichever product you use, the plan matters more than the wrapper. Our guide to building a rules-based risk model sets your risk per trade, stops and loss limits before you open an account.
Risk management is part of our price action trading course, and the basics section is free to start.
This article is for education only and is not financial advice. Trading leveraged products such as CFDs and spread bets carries a high risk of losing money.
