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Traders use spread bets and CFDs to replicate buying and selling an asset, such as a stock, without owning the physical asset. This makes it much faster to trade, often lower cost and suitable for regular trading. You can also trade both price directions (up and down), and use leverage, which amplifies potential profits as well as losses. Spread bets are also tax-free (tax treatment depends on individual circumstances).
Did you know a lot of experienced and advanced day traders don’t actually directly buy the physical assets (e.g. shares) they are trading? That’s because it can be expensive and slow to continually buy and sell shares or other assets at the frequency most traders trade at (e.g. multiple times per day).
Instead, they trade the price of an asset, using instruments provided by a broker (trading platform) typically Contracts for Differences (CFDs) or, in the UK, spread bets.
They’re slightly different but the concept is the same – to trade the price of an asset increasing or decreasing, rather than actually buying the asset. We’ll run through both just below. This means you can buy and sell in seconds, reliably, directly on the platform.
Capital.com is a leader in trading. There’s a wide range of investments and low fees overall.
This method saves them commission from a traditional stockbroker, and a delay in the order going through. For instance, some brokers (even modern investment apps) will only buy and sell at set intervals, or with a delay, or once per day, and it can take days for orders to settle, which is the completing the transaction of buying or selling a share or fund. That’s great for long term investing, but not suitable for day traders.
CFD trading and spread betting also has some other advantages and benefits for advanced traders too, such as the ability to trade both price directions. That’s the price going up (long) and the price going down (short).
With both spread bets and CFDs, you can trade with leverage. This means you are required to place an initial deposit (margin) to open a position that is larger than the amount you deposit. Leverage can magnify both potential profits and potential losses, and losses can occur rapidly.
For example, using 5x leverage means a £50 deposit gives you exposure to a £250 position. Your profit or loss is calculated on the full £250 exposure, not just the £50 deposit.
If the asset price increases 10%, the value of the position rises from £250 to £275, the £25 increase represents your profit, even though you only deposited £50.
If the asset price falls 10%, the value of the position drops from £250 to £225, the £25 decrease represents your loss.
In addition, trading costs such as spreads, overnight financing charges, and other applicable fees can affect the value of your position, increasing losses as well as reducing potential profits. Leverage does not reduce risk or guarantee returns, and losses can exceed your initial deposit.
Capital.com is a leader in trading. There’s a wide range of investments and low fees overall.
A spread bet is a way to speculate on the price movements of financial markets without owning the underlying asset, such as shares. Instead of buying or selling the asset itself, you enter into an agreement with a provider based on whether you think the price will rise or fall.
In the UK, spread betting is legal and, when offered by authorised providers, is regulated by the Financial Conduct Authority (FCA).
For UK residents, profits from spread betting are currently not subject to Capital Gains Tax or Stamp Duty, as spread betting is generally treated as gambling for tax purposes. However, tax treatment depends on individual circumstances and may change, and this information should not be considered tax advice. Losses from spread betting are also not tax-deductible.
Spread betting works by staking an amount per point of price movement in the underlying market. Your profit or loss depends on how far the price moves, not just the direction.
Unlike fixed-odds betting (such as sports betting), there is no predefined return. Instead, gains and losses increase as the market moves further in your favour or against you. You do not own the underlying asset, and the trade does not replicate ownership.
Assume a share price is quoted at 100p, and one point represents a 1p movement. You decide to stake £5 per point, expecting the price to rise.
If the price rises to 105p (a 5-point move), the profit would be £25 (£5 × 5 points).
If the price falls to 95p (a 5-point move in the opposite direction), the loss would be £25.
This example is illustrative only and does not include costs such as spreads, overnight financing charges, or other fees, which can increase losses as well as reduce profits. Losses can exceed your initial stake, and spread betting is not suitable for everyone.
Spread betting allows you to take positions on falling prices as well as rising prices. It is also a leveraged product, meaning you only need to place a deposit (margin) to open a position larger than your initial outlay.
Leverage can magnify both profits and losses, and losses can occur rapidly. It does not reduce risk or guarantee returns, and it can result in losses greater than your deposit. Further details on leverage and margin are explained below.
Capital.com is a leader in trading. There’s a wide range of investments and low fees overall.
Contracts for Differences (CFDs) are widely used financial instruments that, like spread betting, allow you to trade on the price movements of an asset (for example, a share), rather than buying the physical asset directly.
When you trade a CFD, you enter into an agreement with a broker (trading platform). This agreement is a contract based on whether the price of the asset moves up or down. The contract is an agreement between you and the broker to settle the difference in price between when the position is opened and when it is closed.
For example, if you open a CFD position when the price is 100p per share, and you later close the position when the price is 105p, the difference is 5p per share in your favour. If the price moves in the opposite direction, the difference would result in a loss instead.
This mechanism is where the name ‘Contract for Difference’ comes from – the contract settles the difference in price between the opening and closing of the position. You do not own the underlying asset at any point.
Like spread betting, CFDs allow you to take positions on both rising prices (long) and falling prices (short). Also like spread betting, CFDs are also leveraged products, meaning you only need to place an initial deposit (margin) to open a position that is larger than your deposit. Leverage can magnify both profits and losses, and losses can occur quickly.
Unlike spread betting, profits from CFD trading are generally subject to tax in the UK. You may be liable to Capital Gains Tax on profits above your annual allowance and your annual CGT £3,000 allowance, depending on your overall financial circumstances. Tax treatment depends on individual circumstances and may change, so this information should not be considered tax advice. Further details on tax are covered below.
Spread bets and CFDs are both used frequently by day traders, but which one should you use? Well, as you’ve probably guessed, spread bets are popular in the UK as your profit is typically tax-free, whereas you’ll still generally pay tax on your profits from CFDs.
Only the UK and Ireland have the tax-free advantage of spread betting, that’s why they aren’t really a global phenomenon, CFDs take the crown outside of the UK and Ireland. So, if you are in the UK, it may be worth checking out spread betting.
The structure of a spread bet is slightly different to a CFD as you earn per point, it’s a multiplier effect, whereas a CFD often mimics the stock price, so sometimes your trade may also need to mimic the stock price, such as if you were hedging (reducing risk) a longer term investment, which is done for various reasons.
There’s also often a wider range of assets to trade with CFDs, such as a larger range of stocks and shares and currencies, but that’s not to say spread betting is limited.
Really, the choice is yours, and it depends on your trading strategies and styles. It’s great to know both exist, and as your trading develops, you’ll work out which is best for your trade.
Here’s our top options for spread betting and CFD trading.
Capital.com is a leader in trading. There’s a wide range of investments and low fees overall.
Capital.com is a very well established, and award-winning trading platform, best in class in five categories at the 2026 BrokerChooser Awards.
It’s suited more towards experienced and advanced traders due to its features, but if you’re a beginner, it’s still a great place to learn, as there’s a wide range of trading resources and a user-friendly interface.
The number of markets you can trade is huge, including thousands of stocks across the globe, and offers forex (over 120 currency pairs, which you can trade 24/5). And it offers spread betting, so you can trade tax-free (in the UK). Tax treatment depends on individual circumstances.
The fees are fair overall. There’s no commission, although other fees apply, and it’s free to open an account and deposit money. You’ll pay a fee based on the spread of an asset, which is the difference between the buy price of an asset and the sell price. This is typical with most platforms, and with Capital.com the spread is transparent.
It’s very popular, with over 750,000 active traders globally, and the customer service is excellent, and runs 24/7.
Overall it’s a great platform, and well worth checking out.
With spread betting you can trade:
With both spread betting and CFDs, you do not pay a separate commission or dealing fee, as you might with some traditional stockbrokers. Instead, trading costs are usually reflected in the spread of the asset you are trading, though other fees may also apply depending on how you trade.
The spread is the difference between the buy price and the sell price of an asset. For example, you might be able to buy a share at 101p and sell it at 99p. The difference between these two prices (2p in this case) represents the cost of entering and exiting the trade.
The size of the spread can vary depending on factors such as the market being traded, overall market liquidity, and trading conditions at the time, including time of day. Spreads can widen or narrow and should be considered as part of the overall cost of trading.
Your trading platform will usually display applicable costs before you place a trade, helping you understand how fees may affect potential outcomes. We also take fees into account when reviewing broker platforms.
Note: In addition to spreads, other charges may apply, such as overnight financing fees, currency conversion fees, or GSLO premiums, depending on the product and how positions are managed.
There we have it for why traders use spread betting and CFDs over traditional investing. Traditional investing still has a place, but it’s more suited to long term investors who physically buy shares and hold them for a medium-to-long timeframe. They can also use a tax-free ISA when doing that too.
For day traders, it’s all about CFDs and spread betting. In the UK, spread betting is tax-free, making them a popular choice. For tax purposes, the profit is comparable to gambling winnings, which are tax-free. And functionally, it works similarly to a bet, you place a wager on an asset going up or down in value.
CFDs are more of a global thing, and they allow you to replicate buying and selling an asset, and benefit from its price movement without actually buying the asset directly. You can buy and sell in seconds and when you want to exit the trade, you settle the difference with the broker for any profit or loss.
With both, you can trade both price directions (up and down), and you can use leverage, which is increasing your position size by effectively borrowing from the broker.
There’s a huge number of assets to trade, from stocks and shares to currencies and everything in between.
Keen to get started? Check out Capital.com¹, one of our top recommended brokers for spread bets and CFDs.
We’d love to hear from you, and it will help others too.
Christopher Dowling combines a communications degree with over 10 years experience in the financial services industry in London – with focus on educating people on a wide range of money topics in an easy to understand way. He writes about savings, investing, pensions, mortgages, insurance, banking, loans, business finance and other money topics.
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Capital.com is a leader in trading. There’s a wide range of investments and low fees overall.