Analysis of Spread Betting (Trading)

Spread betting allows you to profit from the financial market at just a fraction of the cost of regular dealing and all profit are free from capital gains tax. Low cost means you can do more with your money using the same initial investment, therefore your potential profit will be greater and you will be able to achieve from just regular dealings

In traditional share dealing, when the price of the share you earn goes up your profit increases and when the price drops you make a loss. Your profit or loss is equal to the number of points up or down the price moves. Spread betting involves placing a stack, and for any penny or cent a share price moves in the direction you expect you make a profit equivalent to the value of your stack.

The spread itself is the difference between the buy and the sell price. These limits represent how much the market must move before you start to make a profit. E.g, you expect the share of company A to go up in value so you place a spread bet of £5 per point to that effect. For every point the share price increases above the spread you would make a profit of £5. But you could also lose £5 for every point that the price falls below the spread.

You can place a position regardless of whether you think the market would move up or down called “going long” or “going short”. Go long by speculating whether the market would go up and your profit will rise in line with that increase. Similarly your losses will increase if the market falls or go short expecting the market would fall in value and your profit would rise as the market falls whilst the profit will increase if the market value rises instead. (You should buy a share if you expect that market value to rise and sell if you expect it to fall)

In UK all profit make from spread betting are currently free from capital gains tax. You can immediately save a large percentage of profits that you will be required to pay if you traded the shares themselves. This also means that you are unable to offset any losses incurred against your capital gains tax liability. Spread betting offers trading at a lower cost as you only need to deposit a small fraction of the trade’s total value to place a spread bet. For example, you can trade £500 worth of Apple shares by only needing to deposit £10. You can use small deposit to trade profit or incur losses as though you have a larger position. And by not owning the underline share itself, you currently don’t need to pay stamp duty plus spread betting is also free from commission fees as the charges are included in the spread.

summary:

1. Select a market: anyone from over 15000 markets from a stock index like the FTSE 100 to commodities such as Gold or Oil
2. Buy or Sell: the spread bet is a speculation that the market would increase or decrease in value
3. The spread: this is the difference between the buy and sell price and varies between markets. This is the main cost of placing a spread bet
4. The margin: this is the deposit you must initially have in your account prior to placing a spread bet. This would be a small percentage of the total trade value based on current market conditions. It is a must to have sufficient fund to cover the cost of all your open trades