What is spread betting?
Spread betting is a tax-free financial derivative that enables you to speculate on the price movement of a financial market, without actually owning the underlying asset. Instead, you predict whether your market’s price will rise or fall, and the degree to which you are right or wrong determines your profit or loss. Spread betting enables you to speculate on the movement of a particular asset – like a currency pair, company stock or even an entire index – without actually owning the asset.
It differs from alternatives such as fixed-odds betting, because the size of your profit or loss is based on how much your chosen market moves. With fixed-odds betting, you have a simple win/lose outcome and a pre-defined payout or loss.
When financial spread betting, the outcome you’re speculating on is the direction in which the price of a financial instrument will move. If it moves the way you predict, your profit will grow the further it goes. However, if the market moves against you, your loss will also increase as the price movement becomes greater. Betting on the price increasing is referred to as going long, while betting that it will decrease is called going short (or ‘shorting’).
Reasons to spread bet
- It’s tax free*. You won’t have to pay any capital gains tax or stamp duty on your profits.
- Small margins. Spread betting is a leveraged product, which means that you don’t have to put up the full value of your position in order to trade. Leverage can make your investment capital go further, but if the market moves against you there’s a risk you can lose more than your deposit.
- You can short the market. As you are simply placing a bet on the direction in which an asset’s price will move, you can take a view on markets that are falling as well as rising.
- Quick execution. You can open a spread bet almost instantly. In most cases you’ll simply pick your market, your bet size and whether you want to ‘buy’ or ‘sell’, and then hit confirm to open your position.
- The thousands of available markets. Our partner brokers offer spread bets on a huge range of markets, including forex, indices, commodities, futures and more, all from one account. As you never own the underlying instrument, this means you’re able to deal on markets that you couldn’t otherwise access, such as whole stock indices.
- 24-hour markets. Our partner brokers offer round-the-clock dealing on certain markets, meaning that you can open and close positions even if the underlying market is shut.
- No commission. In contrast to equity CFDs, there’s no commission to pay. Instead, the cost to open a position is contained within the spread. It is important to understand the risks involved and have suitable risk management strategies in place.
* Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.