A spread bet allows you to potentially profit from the rise or
fall of a financial product without physically having to own
it.
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.
Spread
betting does not incur commissions, stamp duty or
capital gains tax, the only cost is the spread between the selling
and buying price. That said, it should be noted that if you choose
to trade on the popular 'daily' markets that are offered
by the spread betting companies an overnight 'roll over'
charge will be made on your account.
Futures trading, Forex
trading and CFD trading see trades placed in lots,
currency amounts or numbers of shares but spread betting is
conducted in pounds and pence per point movement in the underlying
market you wish to trade.
A popular market for spread bettors is the Daily FTSE or Daily
Wall St markets which allow traders to make bets on how they expect
the UK and US indices will perform. 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 £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.
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 allowing
traders to deposit only a small percentage of the total value of
the trade. For example 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.
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.