A spread bet allows you to potentially profit
from the rise or fall of a financial product without physically
having to own it.
Tax free trading, easy to get started
Spread betting does not incur commissions, stamp duty or
capital gains tax, the only cost is the spread between the selling
and buying price. When you decide to place a spread bet with
a spread betting company you are presented with a selling
and buying price. The difference between the two prices is the
'spread' and so the narrower the 'spread' the lower the
cost to trade.
When trading Futures, FX and CFDs your trades
are placed in lots, currency amounts or numbers of shares but
spread betting is conducted in pounds per point.
How does it work?
A popular market for spread bettors is the Daily FTSE or Daily
Wall St market which allow traders to make bets on how, in the
short term, they expect the UK and US indices to
A £1 per point bet on either market that moves by 50 points away
from the starting price of your bet will result in a profit or loss
of £50 (50 points multiplied by a stake of £1 per point). If you
buy (expecting the market to rise) £1 a point of the
Daily FTSE and is goes up 50 points from your opening
price, you win £50. If it goes down 50 points from your starting
point, you lose £50.
Increase your bet size from £1 to £10 and the profit and loss
swing changes to £500.
Tip: Before you decide how much per point to
bet make sure you understand the potential volatility of the market
you are trading. Some of them move very very quickly resulting in
large profits or losses in very short periods of time.
Spread betting companies now provide advanced trading platforms
and mobile trading solutions that offer access to
thousands of markets from around the world. Bets can be placed in
amounts ranging from just 20 pence per point to thousands of pounds
per point depending on the traders risk appetite.
Like CFD trading, Spread betting is a leveraged product which
means traders only have to deposit a small percentage of
the total value of the trade.
If you decided to buy £10,000 worth of BP shares with a
stockbroker you would be required to place £10,000 in an account
with them before trading. A spread betting company would be likely
to ask for just 10% of the trade value allowing you to place the
remaining 90% in an interest bearing account.
Tip: having to deposit only 10% of the total
value of your trade is a strong reason to use leveraged products
but be warned, make sureyou can access the funds quickly if the
markets start moving against you. You might only need to deposit
10% but you are still liable for the other 90%!
So many providers, so little time..
Spread betting is now one of the most popular forms of short and
medium term trading and is likely to continue to grow in popularity
as more traders decide to take advantage of tax free profits and
ease of access to the world's financial markets.
With so many spread betting companies offering services it can
be a difficult to decide which provider to use. Trading.co.uk has
looked at the current providers and has created a
unique comprehensive comparison service to assist in you
decision making process.
The cost to trade is now as low as it has ever been but
it's important not to become too blinkered by this when you are
making your choice. Finding a broker that can offer you a service
that suits your type of trading style, risk appetite and
technological requirements is just as important as getting the
lowest spreads. If you have a question about a specific broker that
is not already covered please get in touch. We are an independent
company with many years of experience in the retail market and will
endeavour to find answers to any queries you may have.
Further resources on Spread Betting
Comparing Spread betting companies
Below is our top 3 Spread betting providers with a few key
account-opening criteria that we believe should be considered when
you are deciding which broker to open an account with. It's not
always about price; finding a broker that suits your style of
trading and your technical requirements is as, if not more,
important than shaving a few pence off of your dealing costs.
Start comparingSpread betting companies