I’ve been looking for the difference between cfds and spread bets so I can decide which one is the best for me. for you guys that have been long enough in this business, this must be something that’s simple for you. I hope that you can help me. As a beginner, it’s amazon jungle… need to sort things out.
Have done some research on it and here are few points that I’ve gathered:
There are so many kinds of CFDs (DMA and synthetic are the two that I’ve known) but here. I’m talking about the spot CFDs (I don’t know what the correct term for it). I mean the one that’s transacted like spread bets (ex. capitalcfds.com).
Spread Bets are free of any kind of tax, on the other hand, CFDs are tax liable.
and others complicated things…
The one the I’m really concern of is about the tax. For us who lives outside of the UK, is it legal to trade on spread bets account or is it better to have it on CFDs? Tax is something that i’m not interested to mess with. Like the peaceful-taxmen-free-life here.
Open a registered business and trade as the business (not in your personal capacity) i.e. just withdraw a ‘salary’ every month. That way: all business expenses (deemed to be any expenses incurred in the production of income) as well as losses are tax deductible. The idea, of course, is to show a ‘loss’ in the business so that you only pay PERSONAL income tax (but then it depends on how well you’re doing of course). Once you’ve got that set up: just pay your taxes is all. All I know (believe anyway) is that if you DO live in the UK and spread bet then you don’t pay tax but this is based purely on the information on the link below (a UK based CFD broker) but honestly (and while this may sound ‘fiscally dumb’): if you don’t want to fall foul of the tax man in ANY country then take my advice above.
Sorry: this may not be of much help and I’m sure (well I’m hoping) that there are one or two others that are involved in spread betting and know a bit more on the subject. I just tend to try to ‘play it safe’ is all.
Thanks for you reply Yeah it always best to play safe on this tax thingy.
As I can assume now, Spread Bets is only considered legal and tax free for UK citizens and CFDs are more to non-UK citizen because you can always register it as your personal income (or your business account income), as for Spread Bets, I’m not really sure.
Spread betting is classified as gambling in the UK and Ireland hence it’s tax free status. If you’re a citizen of a country outside these countries it might not be possible for you to even open a spread betting account. It would be illegal if you’re from the US presumably as online gambling is prohibited there as I understand it. I think you’d have to go with CFDs in such a case and pay your capital gains tax. In Ireland you can earn €5,000 per year before that kicks in though. If you have to pay tax I think you’d be better off with an FX broker with their better spreads unless you want to use CFDs to trade a wider variety of commodities.
J’sen, where do you live ? Spread betting only makes sense if you can take advantage of the tax angle, ie free of capital gains. Otherwise cfds are better (dma not market maker) as the pricing is better. Spread betting is market maker not dma.
I live in Indonesia. Yes, I read about this DMA CFDs and actually I’ve been looking for a proper DMA CFDs broker. I also read somewhere that, DMA CFDs tend to have bigger spread and bigger capital, is that true? Do you have a recommendation where I can start looking.
DMA will have smaller spreads as you’re seeing the actual exchange price. ie if you’re trading a stock cfd you get the same price as someone trading the underlying stock on the exchange. Market maker pricing will make a price around the exchange price and can be skewed against you, especially if the broker is prone to re-quotes. dma cfds you will pay a commission in line with underlying stock commissions. Generally dma is the way to go as its more transparent and more liquid.
The tax free thing about spread bets is a red herring as you still have to pay a spread but it is good for beginners.
Unless you are going to make more than £10k a year then there is no difference between CFDs and spread bets, there will be no tax to pay. If you are outside of the UK, you will have to pay capital gains tax on whatever you trade, SB, CFD, etc.
The best way is to trade direct market and use an accountant to reduce the tax.
Alternatively, you have tax free accounts that you can trade shares in, again consider the commissions vs direct market.
Like an ISA shares account. What do you want to trade? Forex, stocks, commodities, indices? All?
As you are using $ in the above, I assume you are from the US in which case the tax laws are different.
I’m interested in trading Forex pairs and metals. I’m actually from Indonesia (Asia). I assume that Spread Bets wouldn’t be legal in this country, because as posted earlier, it’s registered as gambling. Gambling is strongly prohibited here.
I have done a bit research and have found that some brokers would give the access to DMA CFDs if we opened a >$5000 account. There are so many derivatives products out there and it’s too much to understand them all for a newbie like myself.
Do you have further advice on this matter?
Is it safe to assume that, with a $100-$1000 initial deposit, CFDs from Market maker brokers (Not DMA) is the only and best choice?
I don’t know anything about CFDs or DMA so I’ll leave that to others. But if you want to trade forex pairs and metals you can probably get that from a forex broker. I’m using Oanda at the moment and can trade a wide variety of forex pairs, spot gold and spot silver.