Spread Betting allows you to speculate on the movement of stocks and shares without using a stockbroker . When you “spread bet”, 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 bet 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 a free of CGT and Stamp Duty .
Contracts for Differences (CFDs).
CFD trading is very similar to spread betting on shares. 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.
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.
The majority of retail customers who bought CFD products on either an advisory or discretionary basis lose money.
Capital Gains Tax
All spread trading profits are recognised as the winnings of a bet, and are exempt from Capital Gains Tax .
Contracts for Difference are liable to Capital Gains Tax in Ireland.
Unlike traditional share dealing, there is no stamp duty to pay on spread betting or CFD trades . 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 or the UK.
In theory – there could be a scenario where someone is deemed to be gambling as a trade or business.
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 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”.
Income Tax on CFDs
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 – the CFDs will not be liable for CGT.
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. The difference being that with your leveraged CFD trade you now need to put up this €1000, as you didn’t when you opened the trade.
Spread betting providers will often charge fees for services like holding a position overnight, live data feeds and so on – since these vary by provider, we’ve not included any here.
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.
Some companies that allow trading in 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.
(71% of retail investor accounts lose money when trading CFDs with this provider.)
Etoro requires a minimum deposit of $200 .
IG – IG Europe is based in Germanyand authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht and Deutsche Bundesbank.
76% of retail investor accounts lose money when trading spread bets and CFDs with this provider.
79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.
If you are interested in investing in shares without the added risks involved with CFDs – take a look at our page comparing online stockbrokers in Ireland
Revenue – What constitutes a Trade?