How do CFDs compare to Spread Betting?

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While spread betting and CFD trading are very similar, the difference is not simply limited to spread betting being a tax-free* product.

For anyone more familiar with using CFDs or traditional stockbroking accounts, one question you may ask is how position sizes are translated from the underlying market into the equivalent size in a spread betting account.

How the price is displayed

On the CFD platform, the price of a UK equity is displayed in GBP per share, and a US equity in USD per share. Whereas in a spread betting account the price is displayed in pence (UK) and cents (US).

For example BP may be trading in a CFD account as 5.490/5.510. This means £5.490 per share is the sell price and £5.510 is the buy price (the difference is the ‘spread’).

In a spread betting account the same market would display as 549.0 - 551.0. This means 549.0p per share is the sell price and 551.0p is the buy price.

Trade size

When spread betting your position size will be placed in GBP per point. This is different to CFDs, which are usually traded in the same units that you would trade in the underlying market.

For example, on a CFD your position may be 100 shares of a UK equity. In spread betting, the equivalent would be £1 per point. We explain this in the example below.

Understanding £ per point

In spread betting, trading ‘per point' refers to the number to the left of the decimal place. So in the example above, if you bought at 551.0 and sold at 552.0, you would have made a profit of 1 point. If your trade size was £5 per point, you would have made £5.

Now, remember in CFD trading the price of BP was quoted slightly differently (5.490/5.510). This is the same price, but quoted in £ (pounds) rather than pence. This means that one share costs £5.510 to buy. Therefore, if you bought 500 shares at £5.510, and sold them for £5.520, then you have made 1 pence on every share (1p x 500 = £5).

You can see therefore that £5 per point in spread betting, is the equivalent to 500 shares in CFD trading. Logic therefore follows that every £1 per point = 100 shares of any GBP-denominated stock. ($1 per point would be 100 shares of a US stock).

*Note that tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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