Financial Spread Bets (Spread Trading) and CFDs are complex instruments and can come with a high risk of losing money rapidly due to leverage.
What are the Differences?
At first glance, there’s little difference between CFDs and Spread Betting.
Both CFD trading and spread trading carry a far higher level of risk than traditional investments and customers can lose more than their initial investment.
They are typically used to make short-term trades based on whether you think the price of a particular underlying asset is going to go up or down.
Both options allow you to go long (a price rise) or go short (Falling prices).
With both CFDs and Spread Trading you can use leverage – so a small deposit can get you a lot of exposure to an underlying asset as well as the possibility of large losses.
The key difference between spread betting and CFD trading is how they are treated for tax purposes in Ireland.
Spread Trading/Betting is tax-free in Ireland.
Profits from Contracts for Difference (CFD) are liable to Capital Gains Tax
More details below on the tax situation.
Contracts for Differences (CFDs).
A CFD is a method that enables individuals to trade and invest in an asset by engaging in a contract between themselves and a broker, instead of acquiring the asset directly.
Forex trading is one of the biggest financial markets for CFDs.
With a “Contract for Difference” – the trader and the broker agree between themselves to replicate market conditions and settle the difference amongst themselves when the position closes.
A Contract for Difference can go in any direction. So you can invest in the possibility of prices going up (a “buy” or “long” order) or down (a “sell” or “short” order), according to what you think is likely to happen.
So you can profit from a share price falling.
The main “selling point” , and also the potential danger of CFDs, is they can be used with “Leverage”. For example – with a 20 times leverage you could invest €50 in a CFD – but you would get the returns from 20 times that – ie €1000. You would also risk losing 20 times the loss.
You don’t have to use leverage.
Warnings: The majority of retail customers who buy CFD products on either an advisory or discretionary basis lose money.
Spread Trading (also known as spread betting) , allows you to speculate on the movement of stocks and shares without using a stockbroker or buying any actual stocks.
When you “spread trade”, you choose whether the price of a product or financial instrument (such as a share, stock index, currency pair or commodity) is likely to go up or down, and decide how much to stake on it.
The amount you wish to bet per point of movement in price is your stake.
If the price moves in your favour, your profit is calculated by multiplying your original stake size by the number of points the share or currency has moved.
If it goes against you, your loss will be calculated in the same way.
An example is given later in the article. You need to be aware that Losses can exceed deposits.
Spread betting is free of CGT and Stamp Duty in Ireland
Financial Spread Betting Providers Available in Ireland
Trade Nation is the trading name of Finsa Europe Ltd, a financial services company authorised and regulated by the UK Financial Conduct Authority. They are also authorised and regulated by the Securities Commission of the Bahamas.
Trade Nation accepts clients from all over the world
Trade Nation say that they are “all about helping beginners get to grips with trading and breaking down complex jargon so it’s easy to understand.”
They do have plenty of useful information and guides for beginners and you can set up a free practice account before you progress to a trading account.
There are no commissions or fees to pay. (They make money from the difference between the buying and selling prices of each product.)
You can deposit and withdraw for free by bank transfer, credit card, and electronic wallet. You can use Euros as your base currency.
Find out more at Trade Nation .
Note- 84% of retail investor accounts lose money when trading CFDs with this provider.
IG is a global brand that is well-established (founded in 1974) and was the first of its kind. IG has clients all over the world across five continents. In 2020, IG won the award for Best Overall Personal Wealth Provider from Online Personal Wealth Awards.
Opening an account with IG is completely free and you don’t have to add funds until you’re ready to place a trade.
To speculate over the longer term, you can spread bet on “futures” for indices and commodities and “forwards” for shares and forex. IG build any overnight funding charges into their spreads, so that everything is included.
If you are looking to take a shorter-term position, you can make a “daily funded bet“. However , with daily funded bets, if your position is kept open past 11pm CET, you will be charged overnight funding. These charges vary and are fully explained on the IG website.
You can practice , risk free, with a demo account.
IG Europe GmbH is regulated by Deutsche Bundesbank and BaFin , which is the financial regulatory authority for Germany.
Customers get 24-HOUR SUPPORT by phone or email.
They have an Irish phone number (+353 1800 995362)
IG offers “negative balance protection,” That means you can’t lose more than your account balance (non-professional clients only.)
They charge a £12 fee per month if no dealing activity has occurred for two years or more. This fee is only charged if you still have funds in your account.
Find out more at IG .
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money
Spread Betting Example:
Say the share price of a Company is €3.00 and you think it’s going to increase, and you want to take advantage of that price movement.
If you bought 1,000 shares in the traditional way, it would cost you €3000.
However, if you placed a spread bet on the equivalent of €3000 worth of shares, you might only be required to pay a 5 per cent margin to open the trade: €150 (€3000 x 5 per cent).
If the share price then rose to €4.00: your profit would be €1000 in both cases.
With your spread bet leveraged trade, however, you’ve only had to put down €150 instead of the full €3000.
On the other hand, if the share price had dropped to €2 you’d be down €1000 in both cases.
Taxation of Spread Betting in Ireland
Is Spread Betting tax-free in Ireland ?
Yes – Spread Trading or Spread Betting is tax-free in Ireland.
Proceeds from spread betting are exempt from Capital Gains Tax , exempt from Stamp Duty and in most cases, exempt from Income Tax.
Capital Gains Tax on Spread Betting in Ireland
All spread trading or spread betting profits in Ireland (and the UK) are recognised as the winnings of a bet, and are exempt from Capital Gains Tax .
No Stamp Duty on Spread Betting
Unlike traditional share dealing, there is no stamp duty to pay in Ireland on spread betting .This is because you don’t take physical ownership of the underlying asset.
Spread Betting and Income Tax
Incidental profits from gambling activities are not subject to Income Tax in Ireland. Therefore – spread betting proceeds are not subject to Income Tax.
In theory – there could be a scenario where someone is deemed to be gambling as a trade or business and they would be liable for income tax.
Revenue has previously said that: –
“If a person is carrying on an activity which has features of trading (frequency of transactions, capital invested, expertise or specialist knowledge) then where a trade is being carried on, the profits are chargeable to income tax.”
We believe that if someone is working in another job and their income from spread betting is not their main source of income – then it would be very unlikely that Revenue would treat their spread betting as a “trade”.
Taxation of CFD Trading in Ireland
Capital Gains Tax on CFDs
Stamp Duty on CFDs
There is no stamp duty to pay on CFD trades .
CFDs and Income Tax
If CFD trading is not part of a business or trade – then as far as we understand it – income tax is not payable on CFD profits. However – Capital Gains Tax will apply instead.
If CFD trading forms part of a business or trade – then any proceeds will be included in the income of the business and they will be charged income tax on their overall business profit
In such a scenario , where income tax is charged ,then the CFDs will not be liable for CGT.
CFD Trading and Spread Betting in Ireland involves a high risk of losing your money. This content is for educational purposes only and is not investment advice
Where can you trade CFDs in Ireland?
There is risk involved of course – and it is recommended that you start with a demo or dummy account to try things out. The majority of retail investor accounts lose money when trading CFDs.
Etoro was founded in 2007 and operates in more than 140 countries with over 11 million users. Irish residents will use eToro (Europe) which is regulated by the Cyprus Securities & Exchange Commission. It uses EU passporting rules to allow it to operate across the single market.
Etoro currently requires a minimum deposit of just $50 for Irish and UK customers. However, they sometimes increase this at very busy times to reduce the number of new customers.
eToro offers CFD trading with currencies, commodities, indices, stocks, and cryptocurrencies.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
76% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Example of CFD possible gains and losses
You believe that Company X will increase in its value over the next week. The current value is €1 per share. You decide to invest in Company X CFDs at €100 with 20 times leverage.
With €100 capital on the line, you buy €2000 worth of CFDs – bought with the 5% capital deposit of €100 plus the 95% leverage of €1900.
The share value of Company X CFDs rises to $1.20.
The profit calculation is (€1.20 x 2000) – (€1 x 2000) + €100. Therefore, the profit portion from the trade is worth (€2400-€2000+$€100)=€500. This represents a 400% gain on the original €100 as a result of a 50% share price increase.
If in the example above – the share price of Company X fell to €0.80 the following would be the outcome:
Loss = (€0.80 x 2000) – (€1 x 2000) + €100 = minus €300.
This is a 300% loss on the original €100 as a result of a 20% drop in the share price.
If you are interested in investing in shares without the added risks and charges involved with CFDs – take a look at our comparison of online stockbrokers in Ireland
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Revenue – What constitutes a Trade?