What are CFDs and spread betting?
Leveraged products that let you bet on price movements without owning the underlying asset. They are heavily advertised, and regulators require providers to publish the proportion of retail accounts that lose money — a figure that typically sits somewhere around 70–80%.
How they work. You agree to exchange the difference in an asset's price between opening and closing a position. You never own the share, currency or commodity. You can go long or short, and you post only a margin — a fraction of the notional value.
Why leverage is the whole story. With 5% margin, a position twenty times your deposit means a 5% adverse move wipes out your capital. Leverage magnifies gains and losses identically, and the asymmetry of percentages works against you: losing 50% requires a 100% gain to recover.
The costs that erode returns quietly:
The spread, paid on entry and exit, which is where much of the provider's revenue comes from.
Overnight financing, charged daily on leveraged positions — which makes these instruments structurally unsuited to holding for long periods.
Slippage in fast markets, where stops execute worse than set.
Currency conversion on foreign assets.
The protections regulators introduced, after widespread retail losses: leverage caps by asset class; negative balance protection, so you cannot lose more than your account; margin close-out rules; a ban on bonuses to attract traders; and the mandatory risk warning stating the loss percentage.
Guaranteed stops limit downside for a premium and are the main defence against gapping — where a market opens far from where it closed and an ordinary stop cannot execute at your level.
The structural problem. These are short-term instruments in markets where short-term movement is close to random, with costs deducted continuously. The published loss statistics are not a marketing disclaimer; they are the base rate, and the most useful thing to know about the product.
Tax treatment differs between the two and by country, which is a genuine reason some people prefer one — but tax efficiency on a losing position is worth nothing.
General information, not investment advice.