Spread Betting vs CFD Position Sizes

Introduction

This article will explore the differences in position sizing between Contracts for Difference (CFDs) and spread betting, which is essential for anyone trading in the UK. I initially found these terms confusing, but in time (years!), I managed to understand exactly what the core differences are in position sizing across two of the most popular trading methods in the UK – so let’s get into it.

What Are CFDs and Spread Betting?

So, before discussing position sizes, let’s define what the terms CFD and Spread Betting actually mean:

• CFDs (Contracts for Difference): CFDs allow traders to speculate on the price movement of assets like stocks, currencies, or commodities without owning the asset itself. You trade contracts representing the asset’s value, and profits or losses are based on the difference between opening and closing prices.
• Spread Betting: Spread betting is speculation on the price movements of markets without owning the underlying asset. Profits or losses are based on your stake per point multiplied by the market movement in points. Spread betting is popular in the UK due to its tax-free status on profits.

Both essentially mean trading without owning the underlying asset – they represent a huge portion of trading in the UK. Compare this to investing, where you directly purchase the underlying stock or asset and directly own this asset – the core difference is that CFD trading and spread betting are trading-focused – using leverage.

Position Sizes in CFD Trading

CFD position sizes are determined by contracts. One CFD typically equals one unit (share / currency unit) of the underlying asset. Your exposure depends on the number of contracts multiplied by the asset price.

Example of CFD Position Sizing:

• You want to trade shares in a company priced at £50 per share.
• Each CFD contract equals one share.
• You buy 20 CFD contracts at £50 each, your total exposure is 20 × £50 = £1,000.
• If the share price moves up to £55, your profit is calculated as: 20 contracts × (£55 – £50) = £100.
• If the share price falls to £45, your loss is: 20 contracts × (£50 – £45) = £100.

CFDs use leverage, meaning you only deposit a fraction of the trade’s full value as margin (e.g., 5% margin requires a £50 deposit for £1,000 exposure).

Position Sizes in Spread Betting

Spread betting position sizes are simpler: your exposure is defined by the amount you choose per point of price movement. Each “point” is a small incremental price move defined by the broker (e.g., £0.01 per point for shares).

Example of Spread Betting Position Sizing:

• Assume the same stock priced at £50.
• You place a spread bet of £10 per point movement.
• If the stock rises to £55, this equals 500 points (£5 price increase × 100 points per pound), thus your profit is £10 × 500 points = £50.
• If the stock falls to £45, you lose £50 (500 points × £10).

You can of course increase or decrease your risk amount per point to effectively manage your risk… Spread betting also involves margin, based directly on your stake per point. Higher stakes per point increase required margin deposits.

Key Differences

The main differences between CFDs and spread betting:

CFDs:

• Defined by contracts; each contract has a direct relationship with the asset price.
• Calculated explicitly: number of contracts × asset price movement.
• Margin based on a percentage of the total position size.

Spread Betting:

• Defined by your chosen risk per point; no contracts.
• Calculated explicitly: stake per point × number of points moved.
• Margin requirement directly relates to your stake per point.

Understanding Base Currency and Margin

Base Currency:

• The currency your trading account is denominated in (e.g., GBP).
• All profits, losses, and margins are calculated in this currency.

Margin Requirements:

• CFDs: Calculated as a fixed percentage of total trade value.
• Spread Betting: Calculated based on your chosen stake per point, increasing proportionally.

Tax Implications

Keeping this simple, CFD’s are subject to capital gains tax, whereas spread betting is considered gambling so is therefore tax-free as of July / August 2025.

Which is Better: CFDs or Spread Betting?

Choosing between CFDs and spread betting depends on your preference and trading objectives:

CFDs may suit traders who:

• Prefer detailed, structured trading with clear asset-linked contracts.
• Trade professionally and require precise risk management.

Spread Betting may suit traders who:

• Prefer simplicity in position sizing (stake per point).
• Value the tax-free nature of profits.

My Experience and Some Tips

When starting, spread betting felt straightforward due to the clarity in risk per point. Over time, I found CFDs offered precise control over my exposure and better risk management strategies. Here are actionable tips:

• Start with small stakes or contract sizes.
• Monitor margin closely to avoid margin calls.
• Always clearly define entry and stop-loss points.

Determining Ideal Position Size

Follow these clear steps to manage your risk effectively:

1. Set Your Risk Limit: Decide the maximum percentage or monetary amount of your trading capital you are prepared to risk per trade.
2. Define Trade Parameters: Clearly set your entry and stop-loss levels and use a position size calculator to assess your risk or dedicated spread betting calculator (if spread betting).
3. Calculate Position Size:
   • CFDs: Divide your defined risk by potential loss per contract to find the optimal number of contracts.
   • Spread Betting: Divide your risk by total points to your stop-loss to determine your stake per point.

Summary of Key Differences

Factor	CFDs (Detailed)	Spread Betting (Detailed)
Calculation Method	Contracts × Asset price movement	Stake per point × Point movement
Flexibility	Less flexible, structured	Highly flexible
Margin	Percentage-based on exposure	Directly proportional to stake
Risk Management	Precise via contract calculation	Simple and intuitive per point
Taxation	Subject to CGT	Usually tax-free in the UK

My Thoughts

The actual mechanics of CFD and spread betting position sizing will help you align your strategy to these highly popular methods of trading in the UK. From my experience, spread betting is ideal for those new to trading or seeking straightforward simplicity, while CFDs offer greater detail, precision, and suitability for experienced traders requiring structured risk management.