For UK traders, spread betting and CFDs (contracts for difference) are two popular ways to access financial markets without owning the underlying assets. Both let you speculate on price movements across shares, indices, commodities, and forex, but the right choice depends on your trading goals, tax considerations, and risk tolerance. 

Understanding the differences can help you trade more efficiently, manage risk, and choose the structure that best fits your style. This guide explains how spread betting and CFDs work, their advantages and disadvantages, and when each may suit your strategy. 

Spread betting is a leveraged derivative product that lets you speculate on whether a market will rise or fall. 

• Leverage: you can control a larger position with a relatively small deposit (margin), but potential profits and losses are calculated on the full position size. This means that you could gain or lose a comparatively large amount of money quickly.
• Derivative: a spread bet’s price is derived from the underlying market that you’re trading on, but you won’t ever own that market or asset. Instead, you’re speculating on whether its price will go up or down.
• Tax treatment: in the UK, potential profits from spread betting are generally tax-free* for retail traders.
• Trade format: spread bets are quoted in pounds per point. This means that for every point a market moves, your position’s value changes by the amount you’ve staked.

When spread betting: 

• Buy if you think the market will rise.
• Sell if you think the market will fall.
• Choose a stake per point to determine exposure.

For example, if you stake £5 per point and the market moves 20 points in your favour, your potential profit is £100. If it moves 20 points against you, your potential loss is £100. 

A CFD (contract for difference) is another leveraged derivative product that allows you to trade price movements without owning the underlying asset. 

• Contract-based trading: CFDs are structured in units of the underlying market, rather than pounds per point. These units can vary depending on what you trade, so it’s important to be clear on what they mean first.
• Fine-tuned sizing: CFD providers often allow you to trade in fractions of contracts, to enable you to take on the amount of risk you’re comfortable with.
• Currency flexibility: CFDs may suit traders who want to trade in the base currency of the underlying asset rather than just pounds sterling.

Unlike spread betting, CFD profits are subject to Capital Gains Tax in the UK. Costs vary by provider. As with spread betting, you’ll never own the underlying asset, and leverage magnifies both gains and losses relative to your margin. 

The spread 

The main charge you’ll pay when spread betting or trading CFDs is called the spread. The spread is the difference between the buy price and the sell price quoted for a market. Every market and broker has different spreads, and the higher they are, they more they’ll affect your profit and loss. 

General rule of thumb: 

It is important to consider your individual circumstances and decide whether our products are right for you, as a general rule of thumb: 

• Choose spread betting for tax-free* potential profits and a pound-per-point position model.
• Choose CFDs if you’d rather trade in contracts than pounds or want to trade in the underlying market’s base currency.

Pepperstone offers both spread betting and CFD trading on the same platforms with consistent execution ². 

You can trade both products with Pepperstone on MetaTrader 4, MetaTrader 5, and cTrader, as well as Pepperstone’s own proprietary platform. 

To get started:

1. Open an account

Complete the application process and identity verification.

2. Fund your account

If approved, deposit sufficient funds to meet margin requirements.

3. Access the trading platform

4. Select your index

 Find your preferred instrument, whether for spread betting or CFD trading.

5. Set trade parameters

Define:

• Direction (buy or sell)
• Stake per point
• Stop loss
• Take profit (optional)

Pepperstone’s order ticket displays margin impact and projected exposure before confirming the trade, helping you assess risk in advance.

6. Monitor and manage the trade

You can adjust or close your position as market conditions evolve. Be aware that overnight financing charges apply to positions held beyond the trading day and can affect your overall cost.

Both spread betting and CFD trading are leveraged and high risk. Positions can move quickly against you.  

For retail clients – this can mean losing more than your initial margin on a position, but not on your account overall.  

Key risk management principles include: 

• Position sizing: only trade with money you can afford to lose.
• Stop losses: Setting stop losses before entering trades to limit potential losses. Standard stops may not be guaranteed in fast-moving markets.
• Market awareness: understand macroeconomic events and market drivers that can influence positions.
• Avoid emotional trading: making decisions based on analysis rather than pressure or volatility.

There is no single 'better 'option between spread betting and CFDs. The choice depends on your trading style, goals, and tax circumstances. 

• Spread betting offers tax-free* potential profits in a pound-per-point trading model.
• CFDs provide a more traditional contract trading mechanism, and flexibility for trading in base currencies.

Pepperstone provides both, with the same platforms, execution, and access, allowing you to focus on clarity, risk management, and efficient trading.