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CFDs and Spread Betting

What are CFDs?

CFD stands for Contract for Difference. A CFD is a contract between two parties, usually described as a Buyer and a Seller.

The CFD states that the Seller will pay the Buyer the difference between the current price of a product and the price at the time of closing the trade.

If the market moves against the trade and the price difference becomes negative, the Buyer then pays the Seller.

What is CFD trading?

When you trade CFDs, you’re trading the changes in price of a product. A CFD mirrors the product that’s being traded, so if you were to Buy 200 CFD Shares when trading Amazon, it would be the same as Buying 200 Shares. 

If you think the price of a product will rise, you would Buy.

If you think the price of a product will fall, you would Sell.

If the market moves as you speculated, you would profit, but the market can move against you, meaning that you would make a loss.  

What is spread betting?

Spread betting is a type of CFD. A spread bet is a trade of a monetary amount per point movement on a product. In spread betting, you’re speculating on whether the price of a product will rise or fall.

The ‘spread’ is the difference between the Buy and Sell price. The spread also represents how much it will cost you to place a trade on that product.

At Trade Nation, our outstanding spreads are fixed. Not only does this mean the cost of entering a trade remains relatively small, it also means that the spread won’t change.

Some of our competitors change their spreads when there are movements in the global market, but we don’t. It’s just one of the ways we give our members an excellent trading experience.  

You can spread bet 1000s of markets with Trade Nation.  

The difference between spread betting and CFDs

At Trade Nation, we offer our members the chance to trade CFDs and take part in spread betting. But what are the differences?

One of the main differences between spread betting and CFDs is the currency used for the trade. Spread bets are always traded in the currency of a member’s account, but CFDs are traded in the currency of the market and then converted back to the currency of the member’s account.

This means that changing exchange rates can affect your profit, or loss.

The way profits from spread betting and CFDs are also different.

Trading through spread betting is tax free, including Capital Gains Tax and Stamp Duty Tax.

You won’t be charged Stamp Duty Tax when you trade CFDs, but profits from CFD trading will be taxed through Capital Gains. This means that any losses can also be offset by your Capital Gains Tax liabilities.

At Trade Nation, we charge commission for CFD trading, but when you spread bet, all charges are included in the spread. When it comes to spread betting, all our spreads are fixed, but they can be variable when you trade CFDs.

Looking for practical examples of how spread betting and CFD trading works? We’ve got just the thing.  

Both CFDs and spread betting are known as leveraged products. Not sure what that means? Find out with our handy guide.

Financial spread trading comes with a high risk of losing money rapidly due to leverage. You should consider whether you understand how spread trading works and whether you can afford to take the high risk of losing your money.