Spread betting is a widely used method of trading a board range of financial markets from UK shares to gold and from EUR/USD to crude oil.
Spread betting has a number of features that helps to make it a fundamental tool for a lot of private investors:
You can speculate on a significant number of markets. Spread betting companies like Financial Spreads offer thousands of markets across a variety of asset classes including forex, shares, stock market indices, commodity markets, interest rates and bonds.
Spread betting is a tax free* tool for speculating on the world's markets. There is no stamp duty, no capital gains tax and no income tax.
With a spread bet it is possible to go long (buy) or short (sell) of a market. In other words, you can make a profit when markets fall as well as when they rise.
Compared with alternative methods of trading, such as CFD trading and buying/selling shares, spread betting is commission free and there aren't any brokers' fees.
Investors can open and close trades online, via mobile phone apps and over the phone.
Most new trades are accepted right away (or at least within a matter of seconds).
The above helps to make spread betting a convenient and quick form of trading. Having said that, as with all varieties of trading, it is possible to make a loss.
Spread betting is a leveraged product and therefore it carries a high level of risk, your losses could exceed your initial deposit.
Note that spread betting might not be suitable for your investment requirements. Before trading, seek independent financial advice.
Spread Betting Companies
There are a number of spread betting companies, such as IG Index, which tend to offer a wide range of markets but also charts, trading orders and 24 hour trading (5 days a week on selected markets).
Spread Betting Company Review
New Account Offer?
Trading Charts?
24 Hour Spread Betting?
Stop Losses Available?
Guaranteed Stop Available?
Demo Account?
Regulated by?
Spread betting services may also be available from other companies. Notes.
With spread betting, the most popular markets tend to be the large stock market indices and the ‘major’ forex markets. Please find below a number of the companies that offer these markets.
FTSE 100
FTSE 250
Dow Jones (Wall St)
DAX 30
CAC 40
Other European Indices
Stock Market Index spread betting markets may also be available through other companies. Notes.
Whilst the companies listed below offer these major forex markets they often also offer ‘minor’ and ‘exotic’ forex markets, for more details see FX spread betting.
Dollar/Yen
Euro/Dollar
Euro/Pound
Euro/Yen
Pound/Dollar
Pound/Euro
Other Forex Majors?
Currency spread betting markets may also be available through other companies. Notes.
Spread Betting Company Reviews
Online-Spread-Betting.com provides a range of spread betting company reviews for firms such as Financial Spreads.
Most people have rules to guide their investment decisions. Here are a few of the more commonly used tips and hints.
It's critical that you have a trading plan. Deciding which of the financial markets you are trading, setting realistic goals and understanding just how much money you're prepared to lose will help you make more well informed judgements.
Try to trade the markets and sectors that you are familiar with. If you have minimal experience of the commodities markets but have a strong appreciation of UK shares, then you ought to be best off sticking with the UK markets.
It is often worth trying a financial spread betting demo account. These are free accounts that have virtual capital. If you aren’t that familiar with spread betting, or perhaps you want to test your theories on particular markets, then some risk-free practice might help you recognise the pros and cons, along with the numerous types of trading order, market volatility etc.
Do not try to trade too many positions at any one time, it can be tricky to calculate your overall position. Naturally, making intelligent, educated decisions on a wide variety of concurrent positions can be difficult, particularly on multiple losing trades.
As part of your trading strategy, you ought to take into account the capital that you are ready to risk on each trade. Attaching a Guaranteed Stop to your trades can help ensure that a trade is shut down in the event it hits the level you set for the Guaranteed Stop. Guaranteed Stop orders help you remain within the risk limits that you are happy with. Also see spread betting stop loss.
Appreciate that you won't be successful with every trade. Whenever you lose, you might be tempted to chase your loss, which could end up with you making some inadequately thought out trades as you seek to recover your investment. Any such trades are far more likely to lead to a further loss of capital.
On Online-Spread-Betting.com we also offer a range of daily tips / broker recommendations on UK shares, for today’s recommendations see Spread Betting Tips.
Spread Betting Market Commentary
Each day Online-Spread-Betting.com offers a variety of news, views, comments and tips on the spread betting markets. For the latest opinions see:
A particularly popular market that many investors trade is the FTSE 100. A spread betting company will quote a price with a bid (sell) & offer (buy) price.
At this point you choose whether you think the FTSE 100 is going to move higher or lower & you decide upon how much you are willing to trade, eg £2 per point, £4 per point, £20 per point etc.
It's normally a good idea to maintain small stakes, so if you go long of the FTSE for £2 per point then, in basic terms, you'll make a profit of £2 for each point the FTSE 100 moves higher. Likewise, you’d lose £2 for each point that the FTSE 100 goes down.
Alternatively, you could speculate on the index to fall. For example, you could ‘sell the FTSE 100’ and spread bet on the market to drop with a stake of £4 per point. If so you would make a profit of £4 for every point the FTSE 100 index goes down and lose £4 for each point the FTSE 100 moves higher.
Be aware that the FTSE 100 can easily move 100-150 points in a day and therefore it is not hard to turn quick profits/losses. So, as with all investments, always invest using money you can afford to lose.
Spread Betting - How Does it Work with Different Markets?
Spread betting works the same way for all markets, irrespective of whether you are speculating on the German DAX, Swedish Shares, US Crude Oil or EUR/USD, the spread betting companies show a two-way price.
An investor then decides whether they think the market in question is going to push upwards or move downwards. Then they pick a stake per point and place a spread bet on the market.
Spread Betting Example
Let’s say you want to spread bet on the FTSE 100 and see a quote of 5370.0 - 5371.0.
This means you could bet on the FTSE 100 to go higher than 5371.0 or to go lower than 5370.0.
As mentioned above, if you are financial spread betting, you trade on every unit the market rises or falls; for the FTSE 100 market a unit is 1 point of the index's price movement. In this case let’s assume you decide to bet £3 for every point the FTSE 100 goes up or down.
Spread Betting on a Market to Go Up
If you were to go long of the FTSE 100 at 5371.0 and the index increased then the spread could move to 5414.0 - 5415.0. If that were to happen, you could close your spread bet at 5414.0.
P&L = (closing price of the market - initial price of the market) x stake per point
P&L = (5414.0 - 5371.0) x £3 per point stake
P&L = 43.0 points x £3 per point
P&L = £129.00 profit
Markets can also fall, if the market were to drop down to 5333.4 - 5334.4, you could choose to close your bet to restrict your losses. If that happened, you would sell back at 5333.4.
Therefore, with the same £3 per point stake:
P&L = (closing price of the market - initial price of the market) x stake per point
P&L = (5333.4 - 5371.0) x £3 per point stake
P&L = -37.6 points x £3 per point
P&L = -£112.80 loss
One of the advantages of spread betting is that you can speculate on markets to fall.
Spread Betting on a Market to Go Down
To start with, the spread betting price was 5370.0 - 5371.0.
If you were to go short of the FTSE at 5370.0 and the index went down then the spread might change to 5319.6 - 5320.6. Therefore, you might choose to close your trade for a profit at 5320.6.
P&L = (initial price of the market - closing price of the market) x stake per point
P&L = (5370.0 - 5320.6) x £3 per point stake
P&L = 49.4 points x £3 per point
P&L = £148.20 profit
Naturally, markets can also rise, so if the FTSE 100 had moved up to, for example, 5412.2 - 5413.2, you might want to close your trade in order to limit your losses. If so, you would buy at 5413.2.
With the same £3 per point stake:
P&L = (initial price of the market - closing price of the market) x stake per point
P&L = (5370.0 - 5413.2) x £3 per point stake
P&L = -43.2 points x £3 per point
P&L = -£129.60 loss
FTSE 100 rolling daily prices correct as of 01-Sep-11.
Note - Spread Betting carries a high level of risk to your capital and you can lose more than your initial investment, it may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
'Spread Betting', Feature by D. Jones, last update: 22-Feb-12
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Risk Warning - Spread betting carries a high level of risk to your capital & you may lose more than your initial investment. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seek financial advice where necessary & make sure spread betting meets your investment objectives.
The above information is correct at time of writing. The spreads quoted are for Rolling Daily markets and may vary out of hours. † Tax Law can change.
FinancialSpreads.com is a trading name of London Capital Group Ltd which is authorised & regulated by the Financial Services Authority (FSA). Registered address: is 4th Floor, 12 Appold Street, London EC2A 2AW. All information correct at time of publication.
Risk Warning:
Spread Betting carries a high level of risk
to your capital and you can lose more than your initial investment,
it may not be suitable for all investors. Ensure you only
speculate with money that you can afford to lose and that you fully
understand the risks involved and seek independent financial advice where necessary.
Disclaimer:
Online-Spread-Betting.com does not endorse the information and
analysis available on this site. It is provided purely for information
purposes and is delivered as a personal view of the writer. Under no circumstances
is the information hereon to be used or considered as, an offer to sell, or a
solicitation of any offer to buy. The website content does not constitute investment
advice and neither the individual contributor nor Online-Spread-Betting.com accepts any
responsibility for any use that may be made of the content.
* Tax Free Trading:
Tax law is subject to change. It may also differ if you pay tax in a jurisdiction outside the UK.
