Spread betting is a form of financial derivative, a type of trading where you try to predict the direction of an asset in the hopes of making a profit. Spread betting is available to trade on a wide range of underlying assets, including forex, commodities like gold, equities like individual stocks’ share prices and more.
Similar to CFDs, spread betting is considered financial derivatives trading where you do not own the actual asset, but are speculating on its value instead. More about what spread betting is
Spread bets have been around since the 1970s and are hugely popular in the countries where they can be traded. Although three are many reasons for this, arguably the biggest pro in their favour is that spread bets are completely 100% tax-free.* Many forms of trading accrue some kind of taxes, such as Capital Gains Tax or Stamp Duty in the UK, but spread betting has none of it. What’s more, you can enjoy flexible trading conditions including no commissions,* razor-sharp pricing, deep liquidity, and much more.
Just like other types of trading, you’d spread bet using an online platform and broker (like us) to speculate on the direction of your chosen market. So, instead of buying that asset to later sell it in and make a potential profit, you’re instead simply predicting its future price with spread bets, without taking ownership of the underlying asset.
Unlike the name suggests, you’re not ‘betting’ here – you’re making an informed financial decision on a derivative which directly tracks a real underlying asset. If you predict this correctly, you’ll make a profit. If not, you’ll make a loss.
But how are these calculated? Markets move in points (or pips, as in the case of forex) and with spread betting, your profits and losses per point as well. So, you’re choosing an amount of money to stake on a prediction of a financial market, earning that staked amount of money as profit, which is calculated per point or pip that the market moves in your favour. If you’re incorrect in your assumption and the market goes against you, you’ll lose that amount, which is also calculated per point that the market moves.
This is another advantage of spread bets – they work quite intuitively. A spread betting trade size of £10 per point, for example, would net a £100 profit if the market moved 10 points in your favour or a £100 loss if it moved 10 points against you instead. This conveniently doesn’t take a mathematician to understand.
Let’s see an example of spread betting in action. Imagine that you’re a trader who follows the price of gold, and you think that the gold price will go up. So, you decide to spread bet on the gold price, going long with a trade size of £20 when the gold price is at $2030.05/oz.
The gold price does indeed go up, and it’s sitting at $2040.05/oz when you decide to close your position –10 points higher. This means that your profit is £200 – or £20 multiplied by 10 points.
Profit = £200.00 (£20 per point x 10 points)
The same would have held true if you’d been incorrect in your prediction. If the gold price had instead dropped below $2030.05/oz to $2020.05/oz when you closed your trade, you’d then have made a loss of £200.00 instead.
Loss = £200.00 (£20 per point x 10 points)
Spread bets aren’t the only instruments you can use to trade on the financial markets. With us, you can also use CFDs, which are similar to spread bets in some ways, but a little different too.
One of the biggest differences between the two is that, while CFD trading is free of Stamp Duty, spread betting is free from all forms of taxation in the UK.*
Another significant difference is the way that each works. With spread betting, profits and losses are calculated per point or pip that the market moves in your favour. If you’re incorrect in your assumption and the market goes against you, you’ll lose that amount, which is also calculated per point that the market moves. CFDs are more complicated. The difference in your underlying asset’s price between its price when you opened your trade and when you closed it, is how profits and losses are determined. Those are then multiplied by how many contracts you’ve traded with.
A con in the column of spread betting? Out of the two, CFDs are by far one of the most widespread. Spread betting is only really available in the United Kingdom and in Ireland, while CFDs are accessible pretty much worldwide.
Spread bets can be a powerful way to capitalise on your knowledge of financial markets, to make a profit or a loss, while often paying far less upfront than you would to invest in that same market. Here are the specific pros to trading spread betting:
As you can see, CFDs and spread bets are nearly identical in their characteristics – with added tax benefits to spread betting being one of the main differences.
Leverage is the superpower of derivatives trading, and it’s a potent feature of spread betting. It means that, when you trade on leverage, you won’t pay the entire value of your trade upfront. Rather, you’ll make a kind of down payment, called margin, which is a percentage of the full trade size, to open the trade, basically ‘borrowing’ the rest from your broker.
For example, if the margin rate of your trade was 20% and you decided to open a position worth £1000, that would ordinarily mean you paying the full £1000 in order to trade. But because you’re trading on leverage, you only need to pay £200 in order to open a £1000 position.
There are plenty of risks you face when you trade with a complicated instrument like spread betting. These include:
One of the great things about spread bets is that they are versatile trading tools that you can use with most trading strategies. Whatever your trading style and the techniques, indicators and types of market analysis you prefer to use, you’re pretty much guaranteed to be able to use spread betting for it.
If you’re still trying to determine what the best spread betting trading strategy for you is, here are some of the most popular ones with other traders.
If you use technical analysis in your trading strategy, it means that you rely on reading a market’s chart and data, as well as technical indicators available on that chart, in order to make your trading decisions. Spread betting aficionados use these for the following strategies, among others:
While technical analysis looks at the data of what is happening on the charts in isolation, fundamental analysis considers the macroeconomic by looking at the ‘why’ of the markets instead, focusing on whatever headwinds or tailwinds your underlying asset’s market faces in the grander scheme of things. Some of the strategies used here are:
More than 70% of traders typically lose money, rather than gain it, when they first start spread betting. Here are some of the more common mistakes to avoid when Spread betting trading, for when you first begin:
Spread bets, like all other derivatives, are complex trading instruments that take work and hours of study to master. To speed up your spread betting learning, look through some of our expert guides on spread betting, including how to spread bet on some of the world’s most most popular markets:
What spread bets are exactly Why use spread betting What’s margin and leverage?
Spread betting an index like the FTSE Spread betting on forex Comparing spread bets and CFDs
Q: What is Spread betting?
A: Spread bets are a type of trading that allow you to speculate on the direction of a wide range of different markets based on your views and expectations.
Q: Is spread betting good for beginners?
A: Just like all trading instrument, spread bets are complex and require careful study for beginners. That being said, many traders find them easier to work with than CFDs, as their performance is calculated per point that the market moves. So, once you know what you’re doing, spread betting can be good for beginners.
Q: Can I spread bet in my country?
A: Probably not, unfortunately. Spread betting is fully legal – and offered by us, by the way – in the United Kingdom and in Ireland. In most other parts of the world, you can’t spread bet. These include countries like the United States, Canada, most of Europe, Australia, China, Japan, South Africa and most of South America.