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What is Spread Betting?

Read more about what spread betting is, how to trade and discover a range of tips and strategies.

Spread betting is a means for traders to speculate on the price direction of a wide range of financial markets. As the trader never owns the underlying asset, financial spread betting is described as a derivative-based product which allows trading on thousands of different markets such as forex, shares, indices, commodities and bonds. Invented in the US in the 1940s, financial spread betting gained traction in London from the 1970s on, where it is now one of the primary trading vehicles for retail and institutional investors. In recent years the advent of sophisticated online trading platforms has enabled spread betting to flourish.

Unlike buying shares in a company, in spread betting the participant never owns the underlying instrument. Instead they speculate on the direction of prices quoted by the broker. Spread betting is offered as a derivative-based trading product across forex, commodities, indices, equities and bonds.

What is the Spread?

What is the Spread?

The spread is the difference between the ‘bid’ (buy) and ‘ask’ (sell) prices.

What_are_Spreads

The spread betting provider derives its earnings from this spread. Unlike other forms of trading, this means that there is no need for the trader to pay a commission when spread betting.

What makes spread betting different?

What makes spread betting different?

Leverage

Spread betting is characterised by the use of leverage. In this regard it is similar to trading contracts for difference (CFDs), although there are other important differences. Leverage, which is usually offered at a margin ratio of anything up to 200:1 on the most traded products, means that traders can take larger positions in the market than if they were simply to buy the underlying instrument. Leverage magnifies losses and gains and means that losses can exceed deposits.

Tax-free*

Unlike other forms of trading, such as buying shares or trading CFDs, spread betting in the UK is free from tax. For UK investors, any profits from spread betting activities are exempt from capital gains tax and stamp duty. However, this means that losses cannot be used to offset an individual’s tax liabilities.

Long or short

Spread betting enables participants to take long or short positions depending on their view of the market. As you are not required to purchase any financial asset, you can speculate on the price moving down as well as up. This makes it one of the most flexible ways to trade on shares and commodities in particular.

Range of markets

As a derivative product that does not require the trader to directly access the market, spread betting enables participants to trade on thousands of global markets around the clock. Spread betting platforms enable trading on stock market indices, individual equities, commodities, forex, bonds and other niche markets such as ETFs.

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*Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.