What is Spread Betting?

Financial spread betting is a way of trading on the price movement of a financial market or instrument, i.e. whether it will go up or down in value.

This allows you to trade the markets without the inconvenience, costs and limitations associated with physical ownership.

Investors can trade a wide range of instruments, from commodities, such as Gold or Oil, to indices such as the UK 100 or the US 30.

bulls [Converted]

You can also trade on Forex, where you take a position on whether one currency in a pair will strengthen or weaken against the other or on individual company shares –it’s completely up to you.

Choose from over 3000 commodities, indices, currency pairs and companies, via our next generation platform.

When you spreadbet on whether the price of a financial instrument will go up or down in value, for every point an instrument moves in your favour, you gain multiples of your stake.

For every point it moves against you, you lose multiples of your stake.

If you think that a certain financial market will rise in value, then you ‘buy’ the product with the aim of selling it back at a higher price.
This is known as ‘going long’.

If you think that a financial market will fall in value, then you ‘sell’ first and aim to buy it back later at a cheaper price. This is known as ‘going short’

“All spread betting profits are recognised as the winnings of a bet, and are therefore free of Capital Gains and Income Tax”

PROS AND CONS

Bull or Bear

One of the most obvious advantages of spread betting is the unique opportunity to go short of (or sell) a stock or share. You can therefore experience the benefit of either a rising or falling market!

No Commission or Fees

Because firms like Capital Spreads are not stockbrokers, they do not charge commission or fees. The only “fee” is the spread they charge on the prices that we quote.

Tax Free Profits

All spread betting profits are recognised as the winnings of a bet, and are therefore free of Capital Gains and Income Tax (correct at time of writing for UK tax residents).

Gearing

Spread betting also allows you to trade in sizes smaller than those usually available in the underlying market.

Similarly, you may also benefit from an opportunity to trade in larger positions than are normally permitted in the underlying market, without depositing large sums of money.

Limit your Risk

Spread Betting is a high-risk activity, but some firms offer an automated stop-loss facility which encourages you to understand and control your risk.

Although you must be aware that stop losses are not guaranteed.

Risks

Although you can make substantial profits from spread betting, if the markets move against your bet, your loses can also be substantial and although spread betting firms have a policy of attempting to limit client losses on bets by applying an automatic stop–loss to each bet you make, these stops are not guaranteed.

As a consequence, if a market gaps, you may lose more than your initial deposit.