It is easier to understand than other financial instruments. The process is less complex than that for options, features and Contracts for Difference (CFDs).

With spread betting you can start from a small amount of capital. You can open an account for less than £100. Trades can be placed from an account balance as low as £50.

You only pay a fraction of the full cost of the trade, usually 10%, up front. This is called margin trading.

It enables you to profit from rising (bull) or falling (bear) markets.

It is commission-free.

All the cost associated with the bet are built into the bid-offer spread.

Gains are not taxable. Unlike share trading where gains made are potentially taxed at your current income tax rate, spread bets are not subject to capital gains tax.

There are also income tax savings.

For example, if you own a share paying a dividend, income from that dividend is taxable at your current income tax rate. Spread bets do not pay dividends. Instead, the dividend payment is built into the bid-offer spread so the holder of a position in a dividend-paying share will reap the rewards in the form of a tax-free capital gain rather than taxable income.

No stamp duty

Spread bets are free from stamp duty, currently charged at 0.5% on all share purchases. This is because a spread bet is a contract between the client and the spread betting company and no physical exchange of shares actually takes place.

The savings do add up

For a purchase of £5,000 of any share, the stamp duty charge paid to the Governance is £25. A trader who deals twice a week, 52 weeks a year will end up paying £2,600 in stamp duties alone.

If you were to trade £25,000 in normal share transactions each trading day via a stockbroker, you would pay the Government more than £31,500 in stamp duty over a year.

Other advantages:

One account for a range of financial products. One spread betting account and one account number allows investors to trade indices, single shares, currencies, commodities, bonds and options on a number of global markets.

Instant execution

Spread betting companies are not brokers, so all trades placed are contracts between the client and the spread betting company. This means that each execution is not necessarily traded  over an exchange so there is no delay in routing the order. This allows instant execution in markets where this would not normally be possible.

No currency risk

Dealing in foreign shares can be cumbersome and impractical if you are an average investor. You have to deal with a third party and pay transaction charges. For example, in 2002, traders found it strenuous to balance their books in sterling terms because of the ups and downs of the yen and the US dollar.

Spread betting allows traders to bet in pounds per point on international shares.

Dealing in pounds per point, dollar per point or euros per point make tracking your investments much easier. For example, is share X is up 15 points on the day, it is far easier to estimate your profit by calculating that you have made a £10 per point increase than calculating your number of shares, say 12,500 multiplied by 15 points, less broker charges stamp duty, tax and so on.

Extended trading hours

Some spread betting companies are open 24 hours of a day. This is in contrast to normal market trading hours which run from 8.00am to 4.30pm.

Less paperwork is involved compared to conventional share dealing.

Setting up a spread betting account is simple and easy. All that is required in most cases, is a signed application form and utility bill.

It is a practical form of short-term investing to complement any long-term investments.

Trades executed online are anonymous, fast and cheap.

Online trading platforms for spread betting are said to be more advanced compared to those for traditional share dealing.

Some spread betting companies offer a virtual trading platform for you to practice on. This offers an opportunity for potential spread betters to understand the markets, the dealing process and test trading strategies before committing real money. The ability to practice with virtual money reduced the risk of entering into incorrect positions and helps novice traders to understand the risks involved in dealing with geared products.

Spread betting companies provide access to investment research, news, tutorials, market updates and commentary that are normally only available to institutions.

The type of bets you can do range from financial; shares, indices, commodities, currencies. Sports-based; football, horse racing, rugby. To fanciful, how many sips of water the Chancellor is going to drink during the Budget speech.

Unlimited profits with limited losses

You can control when you want to take profits and run your bet until the point at which you decide to close it. The losses can be unlimited too but, as we shall discover later, they can be capped through stop-losses.

Spread betting is provided by Admiral Markets and London Capital Group.

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