LONDON, January 31, 2011 /PRNewswire/ -- To the untrained eye, CFD trading and spread betting ( http://www.cityindex.co.uk/spread-betting/) appear very similar. This is because they actually are very similar. However, they also differ in ways that can make either spread betting or CFD trading a better fit for you as a trader.
Joshua Raymond, Market Strategist at City Index ( http://www.cityindex.co.uk/), outlines a difference in the fact that CFD trading profits are subject to capital gains tax, while profits from spread betting currently are not*. "However, you can offset losses in a CFD trade used as a direct hedge, which is why some traders prefer CFDs to hedge".
Another contrast is that spread bets are monetised in a trader's base currency, whereas CFD trades are monetised in the underlying market currency. This makes CFD trading party to currency fluctuations, so spread betting can be viewed as more transparent, particularly for beginners.
Finally, there is the opinion that CFD trading simply sounds more professional than spread betting. In reality, the products are very alike, but the term 'spread betting' occasionally alienates traders.
While considering the differences between the two, it is important to note that spread betting and CFD trading are not necessarily mutually exclusive. As Raymond points out: "At City Index you can spread bet and trade CFDs through the same platform. Many of our clients do just that."
Try both spread betting and CFD trading today with a free demo account from City Index. Visit
http://www.cityindex.co.uk/learn-to-trade/demo-account.aspx for details.
About City Index
Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.
As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, binary betting, CFD trading (http://www.cityindex.co.uk/cfd-trading/) and, in the UK, spread betting.
We constantly look to widen the range of assets we offer, improve the performance of our platforms and expand the range of services we provide. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer service and support. For more information, visit http://www.cityindex.co.uk/.
Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
*Spread betting and CFD trading are exempt from UK stamp duty. Spread betting is also exempt from UK Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.
SOURCE City Index