Spread Betting vs CFD: One Rulebook, Three Real Differences
Every comparison of these two products opens the same way: a list of differences. Tax, ownership, position sizing, currency, availability, each given equal weight, as though a trader had to weigh nine variables to choose an account type.
Most of that list does not survive contact with the rulebook. In the United Kingdom the two sit inside one regulatory category, and the protections a retail client gets are identical on both. Three things genuinely differ, and only one of them is the one the marketing leads with.
Key takeaways
- HMRC guidance says a person placing a spread bet is not usually trading, so the gains are outside tax and losses attract no relief either. The exemption cuts both ways and the manuals record exceptions.
- FCA rules put leveraged CFDs and leveraged spread bets in one category, restricted speculative investments, so the same rulebook governs both.
- The same minimum-margin table applies to both, starting at 3.33 percent of exposure on a major currency pair.
- The 50 percent close-out rule and the cap on retail liability at the account balance apply to both, unchanged.
- A spread betting page carries a warning written in the language of CFDs because the FCA prescribes that wording for both products.
- What is left is the unit of exposure, the currency the result lands in, and where the product is offered at all.
Table of contents
The Tax Claim Has a Condition, and a Cost
The tax line is what sells the spread betting account, and both provider pages read for this article lean on it. One marks it with an asterisk and prints no footnote; the other states it with no source at all.
HMRC publishes its own position in the Business Income Manual, and the wording carries two qualifications the marketing drops. The manual states that someone placing a spread bet is not usually to be treated as carrying on a trade, so no tax falls on the gains. In the same breath it says losses bring no relief, and it points to a separate page for the exceptions.
The second half is the part worth reading twice. On a taxed instrument, a losing year can be set against gains elsewhere. On a bet, it cannot. The exemption removes the upside charge and the downside allowance together, which makes it a different proposition for someone whose account is one of several holdings than for someone whose account is all of them.
The manual also records that the firm on the other side is taxed on what it makes, which is a reminder about who the counterparty is rather than a tax point. None of this is tax advice, and the position turns on personal circumstances that a page cannot see.
One Rulebook Covers Both
The FCA groups these products rather than separating them. Its conduct rules for this area apply to what the Handbook calls restricted speculative investments, and both a leveraged CFD and a leveraged spread bet fall inside that class, together with leveraged rolling spot forex contracts.
The consequence is that the protections do not vary by product name. Margin used to open a position has to be money rather than any other asset. The close-out obligation and the liability cap that follow apply on the account, not on the instrument, so a spread betting account and a CFD account at the same firm answer to identical rules.
That is the fact the side-by-side lists obscure. A reader arrives believing the choice carries a safety dimension, and it does not: the choice is about mechanics, currency and tax, with the risk framework held constant by regulation.
Why a Spread Betting Page Warns You About CFDs
Anyone who has read a UK spread betting page has seen the oddity even if they did not register it. The page sells spread bets, and the warning at the top talks about CFDs and quotes a percentage of accounts that lose money trading them.
That is not a copy-and-paste error. The FCA prescribes the standardised warning and specifies that a firm marketing leveraged CFDs, leveraged spread bets or leveraged rolling spot forex uses the same prescribed text, which is written in the vocabulary of CFDs. The firm has no discretion to reword it for the product actually on the page.
It is worth knowing for one practical reason. The loss percentage in that warning is the figure for that firm, and a reader comparing two providers is comparing two different measurements, not a spread betting number against a CFD number.
The Margin Floor Is the Same Table
The FCA sets a minimum deposit as a share of the exposure a position creates, and the table does not change between the two products. A major currency pair requires at least 3.33 percent. A major stock index, a minor currency pair or gold requires 5 percent. A minor index or a commodity other than gold requires 10 percent. A single share, or anything not otherwise listed, requires 20 percent.
Those percentages are the leverage caps stated from the other direction, and they are floors rather than the number a given firm applies. A firm may require more.
The same holds further down the account. The stop-out level sits where the rules put it for both, and the cap that stops a retail loss from running past the balance in the account is written once and applies to both.
What Actually Differs: the Unit of Exposure
Here the two products genuinely part company. A CFD is sized in units of the instrument: a number of contracts, lots or shares, and the result is the price move multiplied by that quantity.
A spread bet is sized as an amount of money per point of movement. The trader names a stake, and the result is the stake multiplied by the number of points. Nothing is being counted in units of the underlying at all.
The practical difference is where the arithmetic lives. Under the first, position size is derived from the instrument, so the value of a point has to be worked out before the risk on the trade is known. Under the second, the value of a point is the input, so the loss at a given stop distance is visible at the moment the order is written.
That suits different habits rather than different skill levels. It is also why the two feel unlike each other on the ticket even when the exposure behind them is identical.
Where the Currency Lands
The unit difference produces a second one that costs money. A stake per point is set in the currency of the account, so the profit or loss arrives in that currency whatever the instrument was denominated in.
A position sized in units of a foreign-denominated instrument produces a result in that instrument currency, which then has to be converted. The conversion is a real cost with a real spread on it, and it is applied by the firm rather than negotiated.
For a trader dealing only in pairs quoted against the account currency, this changes nothing. For one holding index or share exposure abroad, it is a recurring charge that never appears in the comparison tables.
The Two Side by Side
Grouped by what a decision actually turns on rather than by product feature.
| Spread bet | CFD | |
|---|---|---|
| Regulatory class in the UK | Restricted speculative investment | Restricted speculative investment |
| Minimum margin, close-out, liability cap | The same rules | The same rules |
| Position is sized in | Money per point of movement | Units of the instrument |
| Result arrives in | Account currency | Instrument currency, then converted |
| HMRC starting point | Usually not a trade, so gains untaxed and losses unrelieved | A derivative contract, treated as such |
| Where it is offered | A UK and Irish account type | Offered across many jurisdictions |
Who Each One Is Not For
A spread bet is the wrong instrument for anyone who needs losses to be usable. If the account sits beside other taxable holdings and the intention is to offset one against another, the exemption removes the mechanism that would have made that possible.
It is also unavailable to most readers outside the United Kingdom and Ireland, which settles the question before any of the above matters. Availability is set by the regulated entity holding the account, so the answer is on the entity page rather than in a comparison, alongside how client money is held under that entity.
A CFD is the weaker choice where every instrument traded is already quoted in the account currency and the sizing habit is per point. There the conversion step and the unit arithmetic are being paid for and not used. It remains the only one of the two available to most traders, which is why that comparison is academic more often than the tables suggest, and why the comparison against futures is usually the more useful one.
Frequently Asked Questions
Is spread betting free of tax in the UK?
HMRC guidance treats a person placing a spread bet as not usually carrying on a trade, so the gains fall outside the tax charge. The same guidance states that losses attract no relief, and it records exceptions on a separate page of the manual. Tax outcomes depend on individual circumstances and this page is not tax advice.
Is a CFD the same thing as gambling?
No. HMRC describes a retail contract for differences as a derivative contract whose other party is a broker holding authorisation under UK financial services legislation. A spread bet is treated as betting for tax purposes, which is a tax classification rather than a statement about how either product works in a market.
Do the leverage limits differ between the two?
No. The FCA sets a minimum margin as a share of exposure for restricted speculative investments, and leveraged spread bets and leveraged CFDs both sit in that class. A major currency pair starts at 3.33 percent of exposure on either product, and a firm may require more than the floor.
Why can traders outside the UK rarely open a spread betting account?
The product is a UK and Irish account type, and availability is decided by the regulated entity a client is onboarded to rather than by the brand. A firm operating several entities can offer it under one and not under another, so the answer sits on the entity page for the account being opened.
Risk warning: this page is educational and compares how two account types are classified, margined and taxed. It is not advice to open either, to trade any instrument, or to adopt any approach, and it is not tax advice. Leveraged trading carries a high risk of loss. Rules, availability and tax treatment differ by jurisdiction and by personal circumstances and change over time, so check the current terms of the regulated entity holding the account and take independent advice where it is needed.