Spread betting is available in the UK and Ireland and is a financial derivative that traders use to speculate movements in price for an underlying asset. No ownership is taken and profits and losses will be governed by the market performing either in the favour of, or against, the trader’s bet. The more the market moves in the predicted direction, the greater the profit and the more it moves in the conflicting direction, the greater the losses.
Spread betting at a glance
Spread betting can be undertaken using leverage, meaning that individuals can trade using a margin that is supported by borrowed funds from a broker. With just a small personal deposit, you can open a more expensive trade position and increase your profit potential.
Before you open a position, you will be given the option to either go short or long (buy or sell). Short positions are for when you speculate on a drop in market value and long positions are for when rises are expected. The trading ticket will show both prices and the spread is the difference between the two (this will be the cost or commission due) and will need the size of your bet. This is the value that will be taken into account for the movement of each price point and define your final profit or loss.
If you’re still wondering “what is spread betting?”, you can find out more here.
The advantages of spread betting
Here is a breakdown of the pros of spread betting:
1. Leverage can work in your favour
Thanks to the ability to leverage spread betting trades, the market is more accessible to those with a restricted budget.
2. Profit potential
As traders are placing bets on underlying assets, the potential profits come from speculating on both rises and falls in value. With other trading methods, money can only be made from increases in value, so there is only one possible way to profit.
3. Attractive taxation
When choosing between trading methods, spread betting can be a more attractive selection as there is no need to pay capital gains tax on profits.
4. Access to a host of markets
There are a host of markets that you can take advantage of when spread betting, such as Forex, indices, commodities, stocks, shares and many, many more.
The disadvantages of spread betting
- Losses can be sudden and significant if stop loss positions aren’t utilised
- Spread-betting is a short-term trading method and some individuals prefer long-term strategies
- Spread betters won’t have access to shares, grants, dividends, company rights and other similar perks that shareholders have
- Due to leverage, losses are calculated across the entire spread, meaning that they can quickly mount up
Spread betting platforms
Your trading endeavours can be undertaken using a spread betting platform where you will be able to connect with brokers, manage your positions, make withdrawals, implement trading strategies and more. Different platforms will offer varying services, so it can be important to choose the right one. Before signing up, it may be worthwhile to compare features like the markets supported, whether they offer access to other trading options (even if you don’t want to use them right now, you may want to diversify your portfolio in the future), if they have demo trading (which can be especially worthwhile for new traders) and more.
Other things to look out for are:
- Is the platform regulated?
- Does it implement security protocols like encryption?
- Are there any fees or charges?
- Are customer services well supported and responsive?
- Is the website simple to use?
- How fast are the deposit and withdrawal times?
- Does the platform have both mobile and web capabilities?
Each of these factors can improve your overall experience when spread betting, so be sure to be comprehensive in your research.
Final thing to consider when choosing a spread betting
Remember to clearly define your budget and your trading goals before you sign up for a platform and start putting real money on the line. Never bet more than you can afford and keep in mind that the markets can be volatile. There’s no guarantee that the spread betting positions you enter will work in your favour every time, no matter your skills or level of experience. It’s essential to research the market and keep up-to-date global news to safeguard yourself from potential volatility.
Disclaimer:
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread betting and/or trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.Marketing for CFDs and spread betting is not intended for US citizens as prohibited under US regulation.Tax treatment depends on your individual circumstances. Tax law can change or may differ in a jurisdiction other than the UK.
