Derivative trading is when traders speculate on the future price action of an asset via the buying or selling of derivative contracts, aiming to achieve enhanced gains when compared with buying the underlying asset outright. Traders can trade derivatives on a range of financial markets, including forex, indices, commodities and shares.

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Spread betting vs CFD trading 

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Both spread betting and contracts for difference (CFDs) are margined products and forms of financial derivative trading.

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A key difference between spread betting and CFD trading is the taxation of profits. Gains from spread betting are tax-free*, while profits made from CFD trading are subject to capital gains tax. As neither product results in ownership of the asset traded, there’s no stamp duty charge.

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Another difference is regional availability – spread betting is only available in the UK and Ireland, whereas CFD trading is available in many countries globally.

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Profits and losses from spread betting are realised in the currency you bet in. For CFDs, profit and loss is realised in the traded market’s base currency, and therefore is subject to a currency risk. Both trading methods allow for going long or short.

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* Tax treatment depends on your individual circumstances. Tax law can change or may differ in a jurisdiction other than the UK.