What’s the difference between spread betting, CFDs and Direct Market Access (DMA)?
If you’re a trader and are considering upgrading from spread betting to a DMA broker here is a quick run down of the main differences and if it really matters.
1. DMA is not tax free
One of the main advantages of using a spread betting broker for trading is that profits are tax free. As your trades are structured as an amount per point move bet they are not subject (at the moment) to capital gains tax. So if you are a profitable trader acting in a personal capacity you have to weigh up whether or not paying tax on profits is more important that direct market access. You can’t trade DMA through spread betting, you will need a CFD broker.
2. DMA prices are much tighter
This is true, with DMA you get direct market access to the underlying exchange. So if for example you are looking at trading Anglo America on the LSE the prices are:
- DMA: 644.5/644.8
- Spread betting (IG review) 644.5/646
But with DMA it actually gets better because you can put your buy or sell orders inside that spread to make the prices even tighter. Obviously, if you want to buy at 644.6 instead of 644.8 (as is offered) and there are no sellers you won’t get filled. But you do have the opportunity for better pricing.
3. No admin versus commissions
One of the great things about spread betting is that all the costs are built into the spread. But with DMA, you broker will charge you a commission as an extra line on your statements. You also have to manually factor this into your profit and loss when you open and close the trade.
Direct market access also comes with high minimum ticket commissions so if you are a small trader it’s not worth it as the minimum commission for DMA will probably be around £10 in and out so if you’re planning on scalping you’ll have to make more than a few points to break even.
Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.