What is spread betting?
Financial spread betting (or simply, just spread betting) allows you to trade a number of financial markets in either a rising or falling market. Whether you decide to go long (buy) or go short (sell), you have the potential to make a profit, or loss, depending on the market movement.
In spread betting, you don’t own the underlying asset but bet on the movement of a particular instrument, such as forex pairs (such as EUR/USD), cash indices and energies (including FTSE100 and GER30) and precious metals (such as Gold and Silver).
What is a spread?
A spread is the difference between the buy price (if you decided to go long, this is the price you would enter the market at) and sell price (the price that you would enter the market at if you chose to go short) of a particular instrument. The tighter the spread, the less an instrument needs to rise or fall before you can make a profit, or loss. Here at ThinkMarkets, we offer highly competitive spreads across all of our spread betting instruments.
You can see our list of spread betting prices here
UK spread betting
In the UK and Northern Ireland, spread betting is exempt from capital gains tax and stamp duty*, making it a highly efficient form of trading. Also, the ability for spread betting UK instruments, such as the FTSE100, helps enhance your UK spread betting strategies.
CFDs vs spread betting
There are many similarities between CFD trading and spread betting, with unique advantages to both products.
Both CFDs and spread bets are leveraged products, allowing you to maximise profits (although losses can be increased too). Both products are exempt from stamp duty*, and you’re capable of trading both rising and falling markets for each of the products.
Contract size – with spread betting, the contract size is an amount of money per point, determining whether the market rises or falls. On the other hand, for CFDs you buy or sell contracts which represent an amount per point in the underlying market.
Tax – spread betting is currently exempt from capital gains tax*, while CFDs are liable to tax deductions. However, you can offset CFD losses against future profits gained, which can make CFD trading an efficient way to hedge your funds. *Laws are liable to change regarding tax. Spread betting is only tax-free in the UK and Northern Ireland.
Spread betting risks and charges
Spread betting contains a higher degree of risk than traditional forms of trading as it’s a leveraged product. The leverage of your account is the multiplier of your purchasing power that determines the amount of margin required for every trade. For example, if you have leverage of 100:1, you can control a large position (£1,000) with a small amount of margin (£10). This means that while you can maximise your profits with a smaller initial investment, it also means your losses are multiplied as well, and can exceed your initial deposit.
There are also charges to consider while spread betting.
You’re always quoted two prices while spread betting – the bid and the offer. The bid is the price at which you can sell the product, and will always be below the product’s price. Conversely, the offer is the price at which you can buy the product, and will always be above the product’s price. The difference between these two quotes is known as the spread – the charge associated with placing the trade. In order to make a profit, you’ll need the product to either rise or fall a certain number of points from the price at purchase. You need to take this into consideration when opening a trade.
There may be additional charges associated with spread betting – please contact us for more information.
For more information please see the risk warning at the bottom of our website, or contact us at [email protected]