How to Spread Bet on Financial Markets

Spread betting is one of the more popular markets in the UK and Europe. Spread betting is also starting to catch on in Europe (Germany, Holland, France etc), Australia and a lot of the Arab states do.

Spread betting involves wagering money the movement of financial markets such as financial indices, commodities, securities, interest rates, bonds, soft commodities, house prices etc. When you open a trade or “bet” in spread betting you are actually betting money on the “spread”.

In order to begin spread betting, you’ll first need to start open a real account at a legitimate FSA approved spread betting firm such as Capital Spreads or Tradefair. Depending on the company, you can make minimum deposits from as little as £30 and begin live trading from as little as £30 per point in indexes such as the UK Rolling 100 or FTSE 250.

Once you’ve opened an account and have funded your account with enough money to meet the broker’s margins, you’ll need to select a specific stock/indices and open a trade. We do this by first checking the “bid” price which is the price that we can buy at and the “offer” or “sell” price. The difference between these two is known as the spread and its where the broker charges its commission.

When you view stocks or indices on a spread betting platform (or even forex broker rates) you’ll see that the bid price is always slightly higher than the offer price. The difference is the brokers commission. For example, if we’re interested in Stock ABC and the price is quoted at 156p – 155p then we could either buy the stock at 156p (going long) or we could sell at 155p (going short or short selling). If we buy the stock at 156p and bet £10 per point then if the stock closes at 160p the next day we will have made £40 profit. On the other hand, if we bought at £10 per point a 156p and the stock dropped to 140p the next day then we’d lose £160 (16x£10).

As you can see from the above example, the risks of spread betting are considerably high. You can lose far more than your initial deposit in spread betting if you don’t have enough experience and knowledge using technical tools and predicting markets as part of spread betting strategy. You can learn more about how to spread bet or trade on FOREX profitable at this excellent internet trading resource: Spreads.org.uk.

The main advantage of spread betting, specifically in the UK where market growth has been massive, is that unlike regular online trading it is tax-free. All profits that arise from spread betting are both immune from capital gains tax (which can be anywhere from 40% up to 50% depending on your tax bracket and earnings) and Stamp Duty. Stamp Duty is the regular 3% surcharge that you would normally pay when buying shares on markets in the UK from a FSA-regulated broker (e.g. FX Pro).

The other advantage of spread betting is that it gives traders far more flexibility and leverage than regular share trading. Most spread betting brokers will offer as low as 1% deposit margins for betting on the spread of many popular UK indices, in addition to 3% margins on FX currency markets starting from 2 point spreads on the Euro/USD.