CFD Trading or Spread Betting - Find the Trading Method for You

LONDON, January 24, 2011 - Spread betting and CFD trading are both popular ways of speculating on
financial markets. But with many providers, such as City Index
(www.cityindex.co.uk/), offering both spread betting and CFD trading,
how do you choose which method is right for you?

As with any form of financial trading, it is important to do your
research thoroughly in order to make informed decisions. Please be aware that
spread betting and CFD trading are high risk products.

Derivative Products

Both products are derivatives, which means you do not own the underlying
share, currency or commodity. Instead, you speculate on how the underlying
instrument will perform within the financial markets. Because you do not own
the instruments, you currently do not have to pay stamp duty on your
returns.* However, you do have to pay capital gains tax on CFD profits. Like
many things in trading, this is both an advantage and a disadvantage. Losses
made in CFD trading (www.cityindex.co.uk/cfd-trading/) can be offset
against future profits for tax purposes, where as losses in spread betting
are gone for good.

The Cost of Trading

Another major difference between the products is in the way they are paid
for. In spread betting, the price is built into the eponymous 'spread', the
difference between the buying and selling price that must be covered by the
trader before a profit can be made. CFD trading is paid for by a small
commission charge. Because of this difference in pricing, CFDs generally have
tighter spreads.

The Trading Period

The contract periods between the spread betting (
www.cityindex.co.uk/spread-betting/) and CFD trading is a further
difference. Spread bets have a fixed expiration point and will close when the
contract runs out. Contracts are usually daily, monthly or quarterly, and
bets can be rolled over at a charge. CFDs have no such expiration date and
can be kept running indefinitely.

Trading Currencies

In spread betting, trades are always denominated in your local currency
(pounds sterling in the UK). This is not the case with CFDs, which are traded
in their native currency. So if you are trading on stocks on the US stock
exchange, not only will you have to think about the rises and falls of that
particularly stock, you will also have to think about the changes in exchange
rate between sterling and the dollar. Obviously this can go in a trader's
favour, but be warned, it can also reduce profits or increase losses.

Whether you choose to use spread betting or CFDs, it is important to have
all the facts before you start. To learn more about these trading products,
try a free seminar with City Index:
www.cityindex.co.uk/learn-to-trade/seminars.aspx

Spread betting and CFD trading are leveraged products which can result in
losses greater than your initial deposit. Ensure you fully understand the
risks.

*Spread betting and CFD trading are exempt from UK stamp duty. Spread
betting is also exempt from UK Capital Gains Tax. However, tax laws are
subject to change and depend on individual circumstances. Please seek
independent advice if necessary.

www.cityindex.co.uk

Contact: Joshua Raymond, City Index Group, Tel: +44(0)20-7107-7002, Email: joshua.raymond[at]cityindex.co.uk; Jonathan Smith / Alex Nekrassov, New Century Media, Tel: +44(0)20-7930-8033, Email: jsmith[at]newcenturymedia.co.uk / alexnekrassov[at]newcenturymedia.co.uk