CFD Taxes

Contributor Image
Written By
Contributor Image
Written By
Jemma Grist
Jemma is a writer, editor and fact-checker focused on retail trading and investing. Jemma brings a unique perspective to the forex, stock, and cryptocurrency markets and works across several investment websites as a researcher and broker analyst.
Contributor Image
Edited By
Contributor Image
Edited By
James Barra
James is an investment writer with a background in financial services. He has worked as a management consultant, where he delivered large-scale operational transformational programmes at some of Europe's biggest banks. James authors, edits and fact-checks content for a series of investing websites.
Contributor Image
Fact Checked By
Contributor Image
Fact Checked By
William Berg
William contributes to several investment websites, leveraging his experience as a consultant for IPOs in the Nordic market and background providing localization for forex trading software. William has worked as a writer and fact-checker for a long row of financial publications.
Updated

CFD taxes are often overlooked, especially by newcomers to the industry, but it is an important aspect of trading, especially given the ever-increasing popularity of CFDs as an instrument. Taxation policies vary across the world, with some jurisdictions providing tax exemptions, while some class it as fully taxable income and others have banned their trade altogether. This article will review the basics of CFDs before discussing how they are taxed in some of the major financial jurisdictions.

Note, this article should not be construed as professional tax advice. Consult a local tax advisor for guidance in your jurisdiction.

CFD Trading Brokers

  1. AvaTrade - AvaTrade's 1250+ leveraged CFD products span a wide range of asset classes including stocks, indices, commodities, bonds, crypto, and ETFs. You can speculate on underlying assets in the broker’s feature-rich web and mobile platforms with market-leading research tools to help discover opportunities.
  2. Deriv.com - You can trade CFDs on popular markets, including the broker's exclusive synthetic indices which are available 24/7. There are plenty of charting tools available for technical traders, including over 20 indicators in the Deriv Trader platform. New users can also open an account and start trading CFDs instantly.
  3. Exness - Exness offers a selection of CFDs covering forex, stocks, indices, commodities and cryptos, with leverage up to 1:200. Accounts are geared mainly towards experienced day traders, with over 100 technical indicators available in the broker’s proprietary terminal.
  4. Pepperstone - Pepperstone maintains its position as one of the fastest and most dependable CFD brokers during our latest round of testing. With execution speeds averaging around 30ms and an outstanding fill rate of 99.90%, the broker ensures a seamless trading experience without requotes or dealing desk interference. It also provides ample trading opportunities across over 1,300 assets.
  5. XM - Day traders can speculate on leveraged CFDs with zero commissions, spanning popular markets including currencies, equities and commodities. Additionally, the MetaTrader platforms collectively offer dozens of advanced technical indicators built for short-term strategies.

CFD Taxes Comparison

CFD Taxes Comparison
Broker CFD Leverage Minimum Deposit Minimum Trade Regulators Visit
AvaTrade logo
1:30 (Retail) 1:400 (Pro) - 0.01 Lots ASIC, CySEC, FSCA, ISA, CBol, FSA, FSRA, BVI, ADGM Visit
Deriv.com logo
1:1000 $5 0.01 Lots MFSA, LFSA, VFSC, BFSC Visit
Exness logo
1:2000 $10 0.01 Lots FSA, CySEC, FCA, FSCA, FSC, CBCS Visit
Pepperstone logo
1:30 (Retail), 1:500 (Pro) $0 0.01 Lots FCA, ASIC, CySEC, DFSA, CMA, BaFin, SCB Visit
XM logo
- $5 0.01 Lots ASIC, CySEC, DFSA, FSC, FSCA Visit
IC Markets logo
1:30 (ASIC & CySEC), 1:500 (FSA), 1:1000 (Global) $200 0.01 Lots ASIC, CySEC, FSA Visit
Eightcap logo
- $100 0.01 Lots ASIC, FCA, xCySEC, SCB Visit
LiteForex Europe logo
1:30 $50 0.01 Lots CySEC Visit
CityIndex logo
1:30 (Retail), 1:50 (Accredited Investor), 1:200 (Sophisticated Investor), 1:300 (Wholesale Investor), 1:400 (Professional Trader). Varies with jurisdiction. $0 0.01 Lots ASIC, FCA, MAS Visit
DNA Markets logo
- $100 0.01 Lots ASIC Visit
FOREX.com logo
1:400 $100 0.01 Lots NFA, CFTC, CIRO, FCA, CYSEC, ASIC, SFC, FSA, MAS, CIMA Visit
IC Trading logo
1:500 $200 0.01 Lots FSC Visit
eToro logo
- $50 $10 FCA, ASIC, CySEC, FSA, FSRA, MFSA Visit
RoboForex logo
1:2000 $10 0.01 Lots IFSC Visit
InstaForex logo
- - - - Visit

#1 - AvaTrade

Why We Chose AvaTrade

AvaTrade is a leading forex and CFD broker, established in 2006 and regulated across 9 jurisdictions. Over 400,000 users have signed up with the broker which processes over 2 million trades each month. The firm offers multiple trading platforms, including MT4, MT5, and a proprietary WebTrader. 1250+ financial instruments are available for day trading, from CFDs to AvaOptions and now AvaFutures, alongside a comprehensive education center and multilingual customer support.

"AvaTrade offers the full package for short-term traders. There is powerful charting software, reliable execution, transparent fees, and fast account opening with a low minimum deposit."

- DayTrading Review Team
  • FTSE Spread: 0.5
  • GBPUSD Spread: 1.5
  • Stocks Spread: 0.13
  • Leverage: 1:30 (Retail) 1:400 (Pro)
  • Regulator: ASIC, CySEC, FSCA, ISA, CBol, FSA, FSRA, BVI, ADGM
  • Platforms: WebTrader, AvaTradeGO, AvaOptions, AvaFutures, MT4, MT5, AlgoTrader, TradingCentral, DupliTrade

#2 - Deriv.com

Why We Chose Deriv.com

Deriv.com is a low cost, multi-asset broker with over 2.5 million global clients. With just a $5 minimum deposit, the firm offers CFDs, multipliers and more recently accumulators, alongside proprietary synthetic products which can't be found elsewhere. Deriv provides both its own in-house charting software and the hugely popular MetaTrader 5.

"Deriv.com will suit day traders looking to make fast-paced trades using CFDs and multipliers with high leverage up to 1:1000. The broker is also the industry leader in synthetic indices, which simulate real market movements and are available around the clock. "

- DayTrading Review Team
  • FTSE Spread: 0.5
  • GBPUSD Spread: 0.5
  • Stocks Spread: 0.07
  • Leverage: 1:1000
  • Regulator: MFSA, LFSA, VFSC, BFSC
  • Platforms: Deriv Trader, MT5

#3 - Exness

Why We Chose Exness

Exness is a Cyprus-based forex and CFD brokerage established in 2008. With over 800,000 clients, several awards and reputable licensing, the broker has maintained its position as a highly respected global brand. Active day traders can access the popular MT4 and MT5 platforms, raw spreads and multiple account types.

"Exness remains an accessible broker for all experience levels, though experienced day traders will particularly appreciate the ultra-low commission rates, fast withdrawals and high-quality charting software."

- DayTrading Review Team
  • FTSE Spread: 15.1
  • GBPUSD Spread: 0.1
  • Stocks Spread: 0.7
  • Leverage: 1:2000
  • Regulator: FSA, CySEC, FCA, FSCA, FSC, CBCS
  • Platforms: Exness Trade App, MT4, MT5, TradingCentral

#4 - Pepperstone

Why We Chose Pepperstone

Established in Australia in 2010, Pepperstone is a top-rated forex and CFD broker with over 400,000 clients worldwide. It offers access to 1,300+ instruments on leading platforms MT4, MT5, cTrader and TradingView, maintaining low, transparent fees. Pepperstone is also regulated by trusted authorities like the FCA, ASIC, and CySEC, ensuring a secure environment for day traders at all levels.

"Pepperstone stands out as a top choice for day trading, offering razor-sharp spreads, ultra-fast execution, and advanced charting platforms for experienced traders. New traders are also welcomed with no minimum deposit, extensive educational resources, and exceptional 24/7 support."

- DayTrading Review Team
  • FTSE Spread: 1.0
  • GBPUSD Spread: 0.4
  • Stocks Spread: 0.02
  • Leverage: 1:30 (Retail), 1:500 (Pro)
  • Regulator: FCA, ASIC, CySEC, DFSA, CMA, BaFin, SCB
  • Platforms: MT4, MT5, cTrader, TradingView, AutoChartist, DupliTrade

#5 - XM

Why We Chose XM

XM is a globally recognized forex and CFD broker with 10+ million clients in 190+ countries. Since 2009, this trusted broker has been known for its low fees on 1000+ instruments. XM is regulated by multiple financial bodies, including the ASIC and CySEC.

"XM is one of the best forex and CFD brokers we have tested. The flexible account types will suit a variety of short-term trading styles while the $5 minimum deposit and smooth sign-up process make it easy to start trading."

- DayTrading Review Team
  • FTSE Spread: 1.5 pts
  • GBPUSD Spread: 1.9
  • Stocks Spread: 0.002
  • Regulator: ASIC, CySEC, DFSA, FSC, FSCA
  • Platforms: MT4, MT5

What are CFDs?

Before you can learn about CFD taxes, it is important to understand CFDs themselves. A CFD, or contract for difference, is a financial instrument that allows traders to speculate on the price movement of an underlying asset over a length of time. CFDs can be taken out on a huge range of financial markets and assets, with profits and losses reflecting the price movements of their underlying assets.

CFDs are derivative assets, which means that traders are not purchasing the underlying asset, they are simply speculating on the direction of its price movement.

Essentially a contract between an investor and broker for one party to pay or receive the difference in the price of an asset between the time of entrance and exit of the position, CFDs can be used to trade on both increasing and decreasing asset values by way of going ‘long’ or going ‘short’.UK CFD taxes

The derivative nature of CFDs removes many of the barriers present with spot trading.

For example, you do not have to physically take ownership of the asset you are trading, such as a few hundred barrels of oil.

Moreover, you can use CFDs with leverage, which lets you borrow some of a trade’s stake from the broker to open a position larger than you normally would (note this increases both potential profit and loss).

This can provide exposure to expensive assets you otherwise wouldn’t be able to afford, as well as facilitating magnified trade size. However, the risk of loss is also amplified and margin trading can result in the loss of more capital than was initially staked, or even present in your trading account.

While CFD trading shares many of the same characteristics as spot trading, the ability to trade on margin and their speculative nature has implications on CFD taxes that require a closer look.

CFD Taxes In The UK

In the UK, CFD trading taxes are collected by HMRC (Her Majesty’s Revenue and Customs). When considering UK trading taxes, there are two main types to be aware of – stamp duty reserve tax (SDRT) and capital gains tax (CGT). Stamp duty is applied to the purchase of share assets, usually at 0.5%. Capital Gains Tax relates to any profits from the disposal of shares or other financial instruments.

CFD taxes do not include stamp duty reserve tax because the contracts are derivatives, rather than securities. This means that the investor does not physically purchase and take ownership of company shares, they simple speculate upon its price movements. This can make CFD trading quite attractive over spot stocks thanks to their tax freedoms.

Sadly, this does not mean CFD trading is tax-free – capital gains tax is still applied to any gains made from CFD trading. For the 2020/21 tax year, HMRC has established a Capital Gains tax-free allowance of £12,300 (£6,150 for trusts), so investors will only be taxed on their overall gains above the allowance amount. CFD trading losses can also be carried over into subsequent tax years, allowing you to offset against future profits and potentially reducing your Capital Gains Tax bill.

CFD Taxes In Australia

CFD taxes in Australia fall under the jurisdiction of the ATO, the Australian Taxation Office. Unlike the UK, for instance, where the taxation of CFDs is well-established and clear cut, ATO rules are a little more open to interpretation. The ATO’s TR 2005/15 ruling forms the basis for the tax treatment of CFDs in Australia. Although a complex ruling, tax treatment depends on whether your trading of CFDs is of the following nature:

Individual Investors

Individual investors who trade CFDs intending to make a profit fall within income tax regulations, with gains viewed as assessable income and losses as an allowable deduction. However, in some rare cases, CFDs can be viewed by the ATO as having a ‘non-profit-making purpose’. In this case, CFD taxes are considered liable for capital gains tax.

Trading As A Business

Where CFDs are traded as part of commercial or business transactions, they fall under income tax, with any gains considered as assessable income and any losses as an allowable deduction.

When deciding whether CFD taxes should be for trading ‘as a business’, the ATO will assess your approach against the following criteria:

If your trading falls into this category, it allows you to deduct any costs and expenses during the tax year against profits, as well as deducting CFD trading losses against other assessable income.

CFD Trading In Canada

CFD taxes in Canada sit within the remit of the CRA, the Canada Revenue Agency. Although CFD-specific tax guidance can be difficult to source in Canada given that instrument-specific rules are not provided by the CRA, trading tax regulations differ for investors and regular business traders.

Business or day traders – those who trade with high frequency, in high volume, on speculative positions and typically close positions on the same day or in short timeframes – have their profits taxed as business income at their marginal rate. Despite being 100% taxable, this has the benefit of offsetting trading losses against other sources of income, as well as being able to claim expenses against income.CFD taxes in the UK, US, Canada and Australia

However, infrequent or longer-term trading activity will likely mean your investment profits – if there are any – are viewed as capital gains. In Canada, capital gains are taxed at a clearly advantageous 50% of your marginal tax rate, with capital losses able to be offset against any other gains.

Each individual’s approach to CFD trading will help determine whether profits or losses are taxable under assessable income or capital gains. How you include CFD trading gains or losses in your tax return can be open to interpretation, so contact the CRA or seek professional tax advice from an accountant ahead of making decisions on CFD taxes.

For further clarification on trading taxes in Canada, please see our Canada taxes page.

CFD Trading In The USA

CFD trading is currently illegal in the US, as per restrictions introduced by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The ruling applies to both US citizens and residents and is enforceable with both domestic and overseas brokerages.

However, whilst US citizens and residents are barred from trading CFDs, US-based brokers are free to offer CFDs to residents and citizens of other countries where CFD trading is perfectly legal – for example the UK, Canada, Australia and Singapore.

Final Word On CFD Taxes

CFDs and taxes can often be murky waters to navigate through, both as a casual investor and a professional trader. Taxes on CFD trading differ by jurisdiction, with some countries like the UK classifying any potential CFD trading profits as capital gains, whereas others such as Australia largely viewing any CFD profits as assessable income.

It is important to stress that failing to meet tax obligations can have serious consequences with financial and criminal penalties often attached. So, whilst CFD taxes may not be the most thrilling topic, they must be well understood and considered.

This page is not trying to offer tax advice, it merely aims to decipher the multitude of regional regulations and approaches to CFD taxes that currently exist. Before you file any tax returns – CFD or otherwise – please obtain professional guidance from an accountant or advisor.

FAQs

Is CFD Trading Tax-Free?

CFD trading is generally not tax-free, though there are some jurisdictions with tax exemptions – in the UK, for instance, CFDs do not pay stamp duty. However, in most territories, CFDs are liable for either capital gains tax (CGT) or income tax. On rare occasions, CFD taxes can be zero as the trading can be considered a form of gambling and therefore free from taxation, but this is unlikely to be the case for almost all traders. Regulations will vary by jurisdiction.

CFD trading is illegal in a small number of countries, such as the US, Belgium and Hong Kong. However, in many other countries, like the UK, Australia, New Zealand, Canada and Singapore, CFD trading is a perfectly legal and attractive instrument for many traders. Always aim to use a popular, regulated, and trusted broker when trading CFDs.

In The UK, Are CFDs Taxed In The Same Way As Stocks And Shares?

CFDs are derivative assets, which means traders do not take ownership of the underlying asset, unlike with spot stocks and other securities. Therefore, CFD taxes do not include the stamp duty present for spots, though capital gains tax is still charged at the same rate.

Where Can I Learn More About CFD Trading?

CFDs are popular instruments for many retail day traders, though the opportunity for leverage makes CFD trading a risky endeavour. It is recommended to take some time to inform yourself of the markets, assets and associated risks, as well as carefully considering a strategy, before embarking on your journey. Check out our CFD trading guide before getting started.

Which Assets Can I Trade As CFDs?

CFDs can cover thousands of underlying assets and markets, such as stocks and shares, ETFs, bonds, forex, indices, cryptocurrencies and commodities. In fact, the choice of CFD asset classes is continually growing as more brokers come to the market. However, do your research to make sure they can be trusted!