Futures v Spreadbetting

Today's trader has the choice of trading a vast array of markets either with futures contracts or by placing a bet with a spreadbetting company. Both have their advantages and disadvantages which largely depend on your personal circumstances as well as which market and time-frame you trade.

The major differences are:

Price transparency:
Futures have price transparency - that is they are traded through an exchange.  This means the prices of all trades executed are made public and therefore any executions made can be investigated. Spreadbetting is NOT traded through an exchange - rather it's an over-the-counter product with a counter party and a trader has no way of investigating why they were filled, or not filled, and how the underlying prices are devised.

Capital gains tax:
Any profits gained from spreadbetting are free from capital gains tax whereas any profits gained from trading futures will be subject to tax. Conversely, any losses from futures trading are tax deductable whereas losses from spreadbetting are not. You should consult your accountant or financial advisor to decide on any potential tax advantages/disadvantages.

Commissions:
A futures broker will charge a small commission for each trade that you place. For example, the commission per side of a mini Dow futures transaction is generally around 0.5 to 1 point . Spreadbetting firms do not charge a direct commission, instead they place a spread on the instrument you are betting on. This can be anywhere between 2 - 8 points per side of a mini Dow futures bet depending on the expiry date of your bet.

Standardised trade size:
Each futures contract will have a standardised minimum price increment, e.g. the mini sized Dow is $5 per index point movement. Spreadbetting firms allow the trader to decide how much they would like to bet per index point movement. Often this will be as low as $1 per index point movement.

Range of tradable products:
Future contracts are restricted to commodities (eg wheat, corn, gold, etc) and financial instruments (eg Mini sized Dow contract, Euro, 10 year bonds, etc). You can place a spreadbet on anything that a spreadbetting company is willing to provide, eg sport events, political events, etc.