Futures, options, spot, spread betting, contracts for difference….. CONFUSED!

Hi Everyone

I’ve not posted a question for a while so thought I’d post a meaty one for you!

I’m sure you’ve come across terms like ‘futures, options, spot, spread betting, contracts for difference (CFD)’ but like me you may be super confused what it all means. I understand that they’re all different ways brokers allow you to trade, but what I don’t really know is which option is best.

I was hoping that some of the more knowledgeable trading legends on the forum can shed some light onto all these different ways to trade. It would be great to hear everyone’s personal experiences of these ways to trade and any insight in which they feel is better or worse and why.


I’m not a trading legend but I definitely look forward to the responses of others to this question. :blush: Personally though, I think that spot trading is the way to go for a lot of the traders here. :thinking:

This question is so meaty everyone is too scared to answer it…

Spread betting is easy to understand and - in the UK - profits are tax-free.

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Thanks for the insight. Can you elaborate on what spread betting actully is and how it works? Also, do you know is you trade on Metatrader when spread betting?

Effectively you place a bet with (not against) the “broker” that price will rise or fall. It is just the same as buying an asset - the more price rises, the more profit the broker pays you when you exit.

There’s a lot of confusion in forex arising from the idea that we are buying currency. We’re not buying anything. But the benefits from a long position in a rising currency are parallel to being an owner.

The charts and platform and TA etc. are identical to CFD’s. In fact, the UK and EU legally define a spreadbet as a type of CFD.

Cool. Can you recommend a good broker in the UK for spread betting?

I would recommend contacting the biggest and getting demo accounts open with a couple of them. There’s probably little to choose on paper between say IG Index and LCG and City Index but on a personal level, you might value some platform features or customer service of one over another. They’re all fully regulated by the FCA with the exact same regulation standards as CFD providers.

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ah! this us goverment :woman_facepalming: where R U from?

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I’m in the UK. Actually I have no experience in trading from other countries or with brokers from other regulatory jurisdictions.

I read a tweet from a tweeter informing me that cryptos are going to be submitted as a kind of betting in the UK.
While nothing changes for me do you think that will ever happen? And if it happens would it be counted as tax-free? I think that can be good news for you, UK residents.

Doesn’t really matter as if your trading by spread betting it’ll be tax free anyway.

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Any instrument in a nutshell is an exchange of cashflows between two parties. The best way to understand differences between them is in terms of how parties agree to exchange cashflows.

Here is example for Contract for difference (CFD): At time T(start), when parties enter agreement, there is 0 cashflows. At time T(close), the difference is calculated between T(close) and T(start) prices. If difference is positive seller pays buyer, and vice versa, hence exchange of cashflows happen. T(close) is not known in advance and determined when a client wants to close position. Usually traded in OTC markets where dealers can act as buyers and sellers (make market).

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I can believe that could happen. Cryptos are effectively a financial derivative, so they are already like such as an option or a CFD or a spread-bet. They are not tangible assets in themselves, they are capable of open trading between individuals and they are not a government-back fiat currency.

Whether that would be tax-free is another question and the regulators’ decision on this I believe has more to do with the providers’ tax affairs than individual traders’ tax. Remember the regulator’s primary concern tis to ensure smooth operation of the financial services industry, so as to protect investment capital flow, not to protect consumers. Crypto firms are currently a bad bet from the regulator’s point of view, so I could also believe the UK might ban owning or trading cryptos here altogether.