What is spread betting and how does it work?

Edited and reviewed by: Evan Rouse | Financial Writer

Spread betting is a leveraged derivative product that lets you stake a set amount of money per point of price movement. You’re speculating on whether a market will rise or fall, without owning the underlying asset. Three parts of this definition do the heavy lifting: 

• Derivative: The price of your bet comes from an underlying market. You never own the share, the barrel of oil or the currency, for example.
• Leveraged: You put down a fraction of the position’s value as margin, but your profit and loss are calculated on the full position.
• Per point: You choose your stake. Bet £5 a point and every point the market moves is worth £5 to you, notwithstanding any broker fees.

You’ll also see this product called ‘financial spread betting’. It’s the same thing; the ‘financial’ is just there to separate it from sports spread betting. 

Say you want exposure to Microsoft. Traditionally, you’d buy and own some shares, hold them and sell them later at a higher price to make a profit. 

Spread betting skips the ownership. Instead, you stake an amount per point on the asset’s price direction – placing a bet on whether it will rise or fall. The further the price moves your way, the more you make. The further it moves against you, the more you lose.  

Going long in spread betting

If you think an asset’s value will rise, you go long (buy). If your prediction is correct and the market price moves up, you stand to make a profit. However, if the market goes in the opposite direction, you’ll incur a loss. 

Going short in spread betting

Since you don’t own the underlying asset when you spread bet, you can go short too. Going short enables you to capitalise when an asset’s price declines.  
 
Say you have a bearish outlook on the price of gold, and you open a short position to ‘sell’ it. If gold declines in value, your position will generate a profit. If it rises – you’ll incur a loss.  

• Buy price (offer): Where you open a long position, typically slightly above the underlying market price.
• Sell price (bid): Where you open a short position, generally slightly below it.

Want to see this applied to a single market? Read our expert guide to spread betting on gold. 

Understanding your bet size or ‘stake’

In spread betting, your bet size or ‘stake’ signifies the amount of money you’ll gain or lose for each point the underlying asset’s price moves.  

Depending on the market you’re betting on, a point of movement could be a pound, a penny or one-hundredth of a penny. For a UK share, for example, one point is equal to one penny.  

Check the deal ticket of your chosen market to ensure you know what constitutes a point of movement. You can then stake an amount per point of movement. 

Profits or losses are calculated by multiplying the stake by the number of points the price has moved. For example, if you bet £2 per point on the US500 and it rises by 100 points, your profit would be £200 (£2 x 100 points). Conversely, a 100-point decline would result in a £200 loss. 

It’s important to note that your profit or loss is based on your full exposure, not just the margin required to open the trade. This means a relatively small amount of margin can give you exposure to much larger potential gains or losses. If you’re a UK retail client, negative balance protection limits your liability to the funds in your account, so you cannot lose more than those funds as a result of your spread betting positions.

How are spread bets priced?

Spread betting prices comprise the underlying market’s price and your broker’s spread. For a full view of the fees associated with spread betting, visit our costs and fees page. 

What is a spread? 

The spread is the difference between the buy price (also called ‘the offer’ or ‘ask price’) and the sell price (or ‘bid price’) of a tradable instrument. It’s how most brokers make their money and is your main trading cost.

For example, say you’re spread betting on the US500 (based on the underlying S&P 500) and it has a spread of 2 points. This means that the buy price is set at 1 point above the current market price, while the sell price is 1 point below it. Therefore, the market price would need to move through the spread in your chosen direction before you turn a profit. If you opened a bet and closed it immediately, you’d be down by the spread. 

What determines the spread?

Spreads track live market conditions, so they move with liquidity and volatility. Liquid, calm markets tend to have tighter spreads, and illiquid or fast-moving markets tend to have wider ones.  

Major news and economic releases, and the market opening, closing or being disrupted can all cause spreads to widen. Wide spreads make it more expensive to enter and exit positions and increase the likelihood of any stops set close to the market price being triggered.  

The costs beyond the spread

There's one more to budget for – overnight funding. If you hold a spread bet past the market cut-off time (5pm New York time, normally 10pm UK time), you'll need to pay the overnight swap rate, which is a financing adjustment applied to reflect the cost of borrowing funds to supplement your deposit margin overnight. To learn more about overnight funding works at Pepperstone, visit our overnight swap rates page. 

Leverage

Spread betting is a leveraged product, meaning that you can access the market by putting down only a fraction of the total cost of your position. This means you can maximise your exposure while minimising the capital required upfront. But remember, your profit or loss is still calculated on the full value of your position. So, while leverage can magnify your potential profits, it can also amplify potential losses.   

For example, if you wanted to get exposure to Meta shares in the traditional way, you’d need to pay the full share price upfront. However, with spread betting, you might only need to commit 20% of the total value as a deposit.   

Margin

As mentioned above, leveraged trading requires a certain amount of money in your account to open and hold positions. This is known as margin, and there are two key types in spread betting:  

• Deposit margin: What you need to open the position, expressed as a percentage of the full trade value.
• Maintenance margin: What you need to keep in the account to hold it open. If losses eat into it you’ll get a margin call asking you to add more funds. If you don’t, the position may be closed automatically.

Let’s say you stake £10 a point on the UK100 at 10,700, with margin set at 5%. Your position size is £107,000 (£10 x 10,700), so you’d need £5,350 in margin – and would have to keep at least that in your account to hold the position. 

Under FCA rules, providers have to close retail positions when account funds fall to 50% of the margin needed to keep them open. 

How much leverage can you use in the UK?

 FCA rules limit the leverage available to UK retail clients, with the maximum depending on the underlying asset. Higher leverage means less margin is required to open a position, but it also magnifies potential losses if the market moves against you. 

Now for a worked example, using Nvidia shares. Say you expect the company to rise ahead of a product launch and decide to spread bet on its shares to capitalise. They’re quoted at 200.50 – 201.00. You go long at the offer price of 201.00, staking £10 a point. 

If the price rises. Nvidia moves to 210.00 – 210.50 and you close at the bid of 210.00. That’s a nine-point gain from your entry. At £10 a point, your profit is £90 (£10 x 9), before any funding costs. 

If the price falls. Nvidia drops to 192.00 – 192.50 and you close at the bid of 192.00. That's a nine-point move against you. At £10 a point, your loss is £90 (£10 x 9). 

Notice the spread at work. You opened at 201.00 on the offer, so the bid had to climb to 201.00 before you broke even. Your result is always the difference between entry and exit, multiplied by your stake. 

In the UK, spread betting profits are generally not subject to Capital Gains Tax (CGT) or Stamp Duty.* This is because HMRC generally treats financial spread bets as bets rather than investments. 

What that means in practice: 

No CGT*: Profits from selling investments can be liable for capital gains tax once they pass a tax-free allowance, with the rate depending on the size of the gain and where it sits against your income *. Spread betting profits fall outside that system, so they never enter the calculation. 

No stamp duty *: In most cases, buying UK shares attracts stamp duty (or stamp duty reserve tax) on the amount you pay *. Spread bets don't, because you never own the shares. Nothing changes hands. 
 
*In the UK, spread betting profits are exempt from capital gains tax. Please be aware that tax treatment depends on your individual circumstances, and tax law may be subject to change. 

While spread betting is a flexible and efficient way to trade global markets, like any leveraged financial product – it also comes with risks. Find out what they are and see how they stack up against the benefits, below:  

The benefits

• Tax treatment: No CGT or stamp duty on profits in the UK*.
• Long or short: You can take a view in either direction, so a falling market isn’t automatically a closed door.
• Stakes in pounds: You bet in GBP even on overseas markets, so there’s no currency conversion to think about.
• Capital efficiency: Leverage frees up capital that would otherwise be tied up and can amplify your potential profits.However, this can magnify losses in the same proportion.

• Hedging: A short spread bet can offset losses on shares you hold, though it can just as easily add to them.
• Out-of-hours trading: With Pepperstone, you can spread bet 24/5 on selected US shares. This gives you the opportunity act on post-closing-bell moves without having to wait for the market to reopen. 

In the UK, spread betting profits are exempt from capital gains tax. Please be aware that tax treatment depends on your individual circumstances, and tax law may be subject to change. 

The risks

• Leverage cuts both ways: Losses are calculated on your full position and can exceed your margin quickly. 
• Costs accumulate: Overnight funding on a position held for weeks can erode what would otherwise have been a profitable trade.
• Spreads move: Widening spreads can raise your trading costs and can trigger a stop that was sitting close to the market.
• Overtrading: Running several leveraged positions at once multiplies your exposure, faster than it tends to feel.

Managing your risk

You can’t remove the risk, but you can structure how much you take on: 

• Stop-loss orders close a position automatically at a set level, but they aren’t guaranteed. In fast or gapping markets, slippage can occur – which is when your stop order gets filled at worse than requested level. A guaranteed stop removes that risk, usually for a fee.
• Position sizing is one aspect of trading risk that you can control. Size your stake in line with your account size and overall risk tolerance, rather than your level of confidence. One common risk-management approach is to limit the amount you are prepared to lose on any single trade to a small percentage of your account balance, taking into account the stop-loss level and any applicable costs. 
• Price alerts tell you when a market hits a level, so you decide what to do rather than having it decided for you.
• Negative balance protection means retail clients can’t lose more than their account balance.
• A demo account lets you test all of the above with no money at stake. However, it doesn’t replicate live market conditions, including real execution speeds and pricing.

Both are leveraged derivatives on price movements, and day to day they behave similarly. The differences come down to how you size a trade, what currency you trade in, and how you’re taxed. 

The right fit depends on your circumstances. if you’re a UK resident trading your own money, the tax treatment is a factor to consider. However, if you want to offset losses, trade in the currency of the underlying, or you’re outside the UK and Ireland, CFDs may be worth looking into. Our full comparison guide covers the differences in detail. 

In the UK, spread betting profits are exempt from capital gains tax. Please be aware that tax treatment depends on your individual circumstances, and tax law may be subject to change. 

The provider you choose can shape every trade, including what it costs, how reliably it fills and how easily you can manage the risk. 

What to look for in a UK spread betting provider

• FCA regulation: Check the firm is on the FCA register. Regulation brings segregated client money, negative balance protection and, for eligible claims, FSCS cover.
• The total cost of trading: Compare typical spreads on the markets you’ll actually trade, plus overnight funding. A tight headline spread on EUR/USD is no help if you mostly trade indices.
• Execution quality: Look for published fill rates and a clear statement on whether there’s dealing desk intervention. Slippage costs more than a slightly wider spread over time.
• Market range and platform choice: Check the specific instruments you want, not the headline count. Being able to switch platforms without switching broker is useful as your approach changes.
• Risk- management tools: Look for stop- loss and take- profit orders, price alerts and clear margin displays.
• Support: Check hours, channels and where the team is based. When something goes wrong mid-position, this matters more than any feature list.

Which platforms you can spread bet on? 

At Pepperstone, you can spread bet on five platforms: our own (the Pepperstone platform), TradingView, MetaTrader 4, MetaTrader 5 and cTrader. Between them, you get everything from a fast, intuitive way to trade to advanced charting, automation and a wider range of order types – so you can pick the setup that suits how you trade.

No strategy removes the risk, and none of the below is a recommendation. But most approaches fall into a handful of categories, and knowing which one you’re using is the difference between a plan and a guess. 

• Trend following: Trade in the direction of an established move, using tools like moving averages to identify it. Works in trending markets, struggles in choppy ones.
• Breakout trading: Open a position when price clears a defined range, on the basis that the move may continue. False breakouts are the main hazard.
• Range trading: In a sideways market, trade towards the top and bottom of an established range. The risk is that the range breaks while you’re positioned for it to hold.
• News trading: Position around scheduled releases like inflation data or rate decisions. Volatility is highest and spreads widest – an advanced approach, not a beginner one.
• Hedging: A short spread bet to offset a holding you don’t want to sell. Useful, but it caps upside as well as downside.

Whichever you use, define your entry, exit and position size before you open the trade, not after. Our guides to day trading strategies, reversal trading and technical analysis cover the mechanics.

Opening an account usually takes minutes, though verification can take longer. 

1. Check you’re eligible: Spread betting is available to residents of the UK and Ireland, and you’ll need to be at least 18.
2. Register: Sign up with your email address or social account. 
3. Answer the appropriateness questions: Every FCA-regulated provider must assess whether leveraged products suit your experience and understanding. Answer honestly – the assessment exists for your protection.
4. Verify your identity: Standard identity and address checks. Documents to hand speeds this up.
5. Fund your account: Only with money you can afford to lose.
6. Practise on the demo: Test your platform, position sizing and stops with nothing at stake. But remember, a demo doesn’t replicate live market conditions, including real execution speeds and pricing.
7. Place your first bet: Choose your market, decide long or short, set your stake per point, and add a stop-loss before you open. Then monitor it – margin and funding both move while a trade is live.