Spread betting and CFDs are two ways to trade on a price without owning the asset, and for a UK retail trader they behave almost identically day to day: both are leveraged, both let you go long or short, and both fall under the same FCA rules. The practical difference is tax and how a position is sized. Spread betting profits are generally free of UK capital gains tax and stamp duty; CFD profits are taxable, but CFD losses can be offset against other gains. This guide compares the two on tax, cost, and mechanics, and sets out which suits which kind of trader.
Key points:
- Both are leveraged derivatives: you trade the price movement, you never own the underlying share, index, or commodity.
- Spread betting profits are generally exempt from UK capital gains tax and stamp duty; CFD gains are taxable above the annual allowance.
- Because CFD gains are taxable, CFD losses can be offset against capital gains. Spread betting losses cannot, because the profits are not taxed.
- You size a spread bet as a stake per point; you size a CFD as a number of contracts equal to units of the asset.
- Both carry the same FCA retail protections and the same high risk: most retail accounts lose money.
What is spread betting?
Spread betting lets you stake a chosen amount of money per point of price movement in a market. If you think the FTSE 100 will rise, you might bet £5 per point. If it climbs 40 points you make £200; if it falls 40 points you lose £200. You never buy the index itself. Your entire position is expressed in your account currency, so there is no separate currency conversion to think about, and because it is legally structured as a bet, profits are treated differently for tax than an ordinary investment. Spread betting is offered to retail clients only in the UK and Ireland.
What is a CFD?
A contract for difference (CFD) is an agreement to exchange the difference in an asset’s price between opening and closing a position. You trade a number of contracts, where each contract typically represents one unit of the underlying, such as one share. Buy 500 share CFDs and your profit or loss tracks 500 shares, without you owning any of them. CFDs are used widely across the UK, Europe, and Asia, though they are banned for retail traders in the United States. For the full mechanics, see our guide to what CFD trading is and how contracts for difference work.
Spread betting vs CFDs: the key differences
| Spread betting | CFDs | |
|---|---|---|
| How you size a trade | Stake per point (e.g. £5 a point) | Number of contracts (units of the asset) |
| Tax on profits (UK) | Generally exempt from CGT and stamp duty | Subject to capital gains tax above the annual allowance |
| Offset losses against CGT | No | Yes |
| Commission | Usually none; cost sits in the spread | Often a commission on shares, plus the spread |
| Account currency | Always your base currency | P&L can be in the instrument’s currency |
| Where it is offered | UK and Ireland retail only | Widely, except US retail |
| Leverage and margin | FCA retail caps apply | FCA retail caps apply |
The two products are close cousins offered by the same brokers, often on the same platform. The choice usually comes down to tax position and whether you want to offset losses, rather than to any difference in how the trade behaves.
How does the tax differ?
This is the difference that matters most to UK traders. Spread betting is treated as a bet, and gambling winnings are not taxed, so for a retail speculator, spread betting profits are generally free of UK capital gains tax and are not subject to stamp duty. CFD profits, by contrast, are subject to capital gains tax on gains above your annual exempt amount, though CFDs are free of stamp duty because you never take ownership of the shares.
The trade-off runs both ways. Because spread betting profits are not taxed, spread betting losses cannot be used to reduce a capital gains bill. CFD losses can: if you make gains elsewhere in the tax year, allowable CFD losses can be set against them. A trader who expects to be consistently profitable may value the tax-free status of spread betting; a trader who wants losses to count against other gains may prefer CFDs. Tax treatment depends on your personal circumstances and can change, and HMRC may treat someone trading as a business differently. This is general information, not tax advice; check your own position or take professional advice.
Which one costs more to trade?
Direct trading costs are similar, but they are packaged differently. Spread betting usually has no separate commission: the broker’s cost is built into a slightly wider spread. Share CFDs often carry an explicit commission on top of the spread, while index and commodity CFDs are typically commission-free like spread bets. Both products charge overnight financing when you hold a leveraged position past the daily cut-off, calculated on the full position value rather than your margin. For a short-term trader who closes positions the same day, financing does not apply to either. For anyone holding for days or weeks, overnight costs matter more than the difference in spread or commission, so compare the financing rate, not just the headline spread.
What is the same for both?
For a UK retail client the risk controls are identical, because both products sit under the same FCA rules for CFDs and CFD-like products (PS19/18):
- Leverage caps: 30:1 on major forex down to 2:1 on crypto, the same limits for both products, under UK (FCA) and equivalent EU (ESMA) rules; brokers licensed outside the EU and UK apply different limits.
- Margin close-out: your broker must close positions when account funds fall to 50% of required margin. See our guide to the margin call.
- Negative balance protection: retail losses cannot exceed the funds in your account.
- High loss rates: most retail accounts lose money on both. Leverage cuts both ways, so managing it with a stop-loss and sensible leverage matters more than the choice between the two.
One shared restriction: the FCA banned the sale of crypto derivatives to UK retail consumers from January 2021 (PS20/10), so neither spread bets nor CFDs on cryptoassets are available to UK retail clients.
Which should you choose?
Because the two behave the same in the market, the decision is mostly about tax and where you trade:
- Choose spread betting if you are a UK or Ireland retail trader who expects to be profitable and wants the simplest tax treatment, with profits generally free of CGT and stamp duty and everything in sterling per point.
- Choose CFDs if you want to offset trading losses against other capital gains, you trade from outside the UK and Ireland where spread betting is not offered, or you want position sizes expressed directly in units of the underlying asset.
- For either, the same rule decides your results far more than the product label: size positions by risk, keep effective leverage low, and use a stop-loss. Start on a demo account before committing real money.
Related reading
- What is CFD trading? How contracts for difference work and their risks
- Margin call: what it is and how to avoid one
- Leverage in trading: how it amplifies both gains and losses
- Stop-loss orders: where to place them and the trade-offs involved
- CFD trading strategies: the main approaches and what beginners need to understand
Frequently asked questions
Is spread betting really tax-free in the UK?
For a retail speculator, spread betting profits are generally free of UK capital gains tax and stamp duty, because spread betting is treated as gambling rather than investing. This is the main reason many UK traders prefer it to CFDs. The exemption is not absolute: tax rules can change, and HMRC may take a different view of someone whose trading amounts to running a business. It is general information, not tax advice, so confirm your own position with HMRC guidance or an accountant.
Can I offset losses with spread betting?
No. Because spread betting profits are not taxed, spread betting losses cannot be offset against capital gains. This is the flip side of the tax-free status. CFDs work the other way: gains are taxable, so allowable CFD losses can be set against other capital gains in the same tax year. If the ability to use losses matters to you, CFDs have the edge here.
Is spread betting or CFD trading cheaper?
The costs are close, but packaged differently. Spread betting usually has no separate commission and builds the cost into the spread. Share CFDs often add an explicit commission, while index and commodity CFDs are usually commission-free. Both charge overnight financing on the full position value when you hold past the daily cut-off. For multi-day positions, the financing rate is the cost that matters most, so compare that rather than the headline spread.
Do spread betting and CFDs have the same leverage limits?
Yes. For UK retail clients both fall under the same FCA rules, so the leverage caps are identical: 30:1 on major forex pairs, 20:1 on major indices and gold, 10:1 on other commodities, 5:1 on individual shares. Both also have the 50% margin close-out rule and negative balance protection, so a retail client cannot lose more than the money in the account.
Can I trade crypto with spread betting or CFDs in the UK?
Not as a UK retail client. The FCA banned the sale of crypto derivatives, including crypto spread bets and crypto CFDs, to UK retail consumers from January 2021. Any broker offering crypto derivatives to a UK retail client is operating outside FCA rules. Professional clients are treated differently, but retail access to crypto CFDs and spread bets is prohibited.
This article is educational and not financial or tax advice. Spread betting and CFDs are leveraged, high-risk products, and most retail accounts lose money. Tax treatment depends on individual circumstances and may change. VLT Markets is a publisher, not a broker.
