Nowadays, in the interconnected global economy, foreign exchange is an important part. But many investors think that Forex trading and spread betting are similar and much alike. But there are so many DIFFERENCES BETWEEN SPREAD BETTING AND FOREX TRADING. You should know the difference between them. The vital difference is the mode of transaction. You should know that spread betting is very much popular and considered a type of gambling according to the rules and regulations of the United Kingdom. But on the other hand, Forex trading is regarded as the mode of hypothetical investment. Forex trading belongs to CFD trading.
Spread betting or CFD trading
The main differences between spread betting and CFD trading are:
- There are no physical selling and purchasing of the asset in spread betting, and selling fees are included in spreads
- Spread Betting is free from the capital gains tax, while CFD trading requires you to pay capital gain tax.
- Spread betting is available in the UK or Ireland, while CFDs, forex trading are available worldwide.
1. TAX: The implication of tax in spread betting and Forex trading is the main difference. When dealing with Forex trading, you do not win any underlying asset, so you do not need to stamp duty charges. So, your profits are exempt both from capital gain and stamp duty. However, the profits are subject to a capital tax gain. On the other hand, spread betting is different. It is one kind of gambling. There are no physical selling and purchasing.
2. WHO CAN TRADE: Forex trading is available for all traders from all over the world. But on the other hand, spread betting is restricted to the people of Ireland and the UK. So, before opening your trading account, you need to check whether it is regulated and permitted in your country or not.
3. TYPE OF ACCOUNT: In the case of spread betting, most companies may offer you an individual account. But in the case of Forex trading, you can get the option between personal and corporate accounts.
4. FEES: In Forex trading, the fees come in the form of commission charges. But in the case of spread betting, the fees are included in spreads, and there are no extra commission charges.
5. EXPIRY DATE: In the case of spread betting, the expiry date is far in the future. But in the case of Forex trading, the account will not expire.
6. HEDGING: In spread betting, it is possible due to their tax system. But Forex trading is far more suitable and applicable for hedging.
7. ISLAMIC RULE: Spread betting is recognized as a form of gambling, and in Islamic law, it is not acceptable. But Forex trading is proper in Islamic law. So, brokers offer an exceptional opportunity to Muslim traders and open an Islamic account.
8. LEGAL ISSUE: As you can see that spread betting is limited in small geographical coverage. It is solely legal in Ireland and the UK. But from Canada, it also receives some transactions. In the United States, it is banned and prohibited. So the most significant benefit is the tax-free profit. But in the case of Forex trading, there are no issues related to legalities and acceptance. Forex trading is acceptable all over the world and open to all customers.
1. PURCHASE: These both are leveraged items. So, you can make your profit by investing small and also increasing your position size. Then, with the help of the 5% margin, you can hold the position. But these two are varied between providers. You can get the facility of a margin calculator on most of the platforms to measure.
2. ACCESSING THE MARKET: With both, you can invest in thousands of markets. For example, you can invest in stock shares—cryptocurrencies, gold, ETFs, and futures.
3. ACCESSING PLATFORMS: You can get various online options for both Forex trading and spread betting. Platforms are available in mobile applications and desktops. For example, you can use the popular platform named MetaTrader4.
4. PROFIT THROUGH THE FALL OF THE MARKET: Forex trading and spread betting offer profit from the falling market to traders.
Forex trading is one of the most severe and prevalent transactions. On the other hand, spread betting is a type of gambling. Many traders prefer to spread betting over Forex trading. There are no tax obligations in spread betting. It is very much difficult and tricky to say which is better. But if you want to get a tax-free profit, then spread betting is suitable for you. You need to learn the differences and go ahead.
and for the end, let us compare spread betting and stock trading:
Spread betting vs. stock trading
- In stock trading, you own the asset, while in spread betting, you do not.
- Stock trading is profitable in the long term, while spread betting is not suitable for long-term strategy.
- You need to pay for annual profit (capital gains) while spreading betting is tax excepted as a stock trader.
- If you predict the rise or fall incorrectly in spread betting, your losses can exceed your deposits.