Beginners Guide to Spread Betting
New to Spread Betting?
The Spread Betting Trading Centre has compiled the following guide
to explain how Spread Betting works
Understanding the Positives
- By selling the Spread, you are betting that the value of the asset will decrease. By buying the Spread, you are betting that the value of the asset will increase. You can do either, so you can make a profit no matter which way the market is moving. - If capital gains (profits) are made from a spread bet, the profits are not liable to Capital Gains taxes. Most other capital gains are, including CFD capital gains.
- No direct commission or brokerage fees are payable on Spread bets. Because there is a spread in place, the odds are in favour of the brokerage firm, so they do not need to charge any fees.
- Another type of tax that spread betting is exempt from is stamp duty. Stamp duty is a fee charged for every stock purchased through a brokerage firm, it is currently at 0.5%. The only tax that is applied to spread bets, is a betting tax that the spread betting company will pay.
- The majority of Spread Bets are made on margin, which means that you are only providing part of the money that you are making the bet with. Therefore, you can make £2000 worth of Spread Bets, even if you only have £200 to bet. The margin requirements are typically between 8%-10%. Even if you don’t have enough cash on hand, you can make a large bet and make more profit.
- Unlike other types of bets, such as a bet on the outcome of a sporting event, spread bets can be closed at any time. This means that if you are happy with your profit at any time during the bet, you have the ability to close the bet and claim your earnings.
- In order to limit risk to losses, a trader may set an “Automatic Stop Loss” function on their bets. This means that no matter how volatile the stock is, they can always limit their risks to their own comfort level.
- There is no minimum investment requirement. You can bet as little as you want, so when you are just beginning to place spread bets, you don’t have to risk very much.
- Several Spread Betting companies provide demo accounts on their websites. This means that spread betting beginners are able to try their luck with a virtual account, rather than risk real money.
- Traders will not be burdened with tax liabilities from dividends. If a trader owns a stock and the company pays a dividend, they must pay income tax on that dividend. However if the trader makes a spread bet with that same company, the dividend will be built into the buy-sell spread, and therefore the trader will receive a tax free gain, instead of a taxable one.
- Spread betting companies are often open all day, even on weekends. This means that you can place spread bets whenever you like.
- Traders can place bets on nearly anything. From Football, to basketball, to commodities to indices. There is really no limit as to what you would like to bet on. Spread betting companies will set hundreds of thousands of spreads daily and traders can bet on any of them.
- You can place bets in any currency you want. If you want to bet USD per point or GBP per point, it is up to you. Spread betting companies will not charge any conversion fee, and there is no need for traders to worry about converting between different currencies.
- Spread bets are placed nearly immediately. When purchasing stock you must order it from a brokerage firm, who goes and finds the stock you would like to buy. This process can take several minutes. With spread betting, you are only dealing with the spread betting company and there is no need for them to route the order anywhere.
