What is Spread Betting?

When it comes to investing in stocks and shares or its related indices, many methods exist. Spread betting is one such method. As the name suggests, spread betting can be classed as betting. In its simplest terms spread betting is where you bet on a share price of a certain company or even a world index rising or falling.

One of the unique advantages of spread betting is the fact that you can make money in a falling market as well as a rising market. If you believe a share price may fall, then you sell that share instead of buying it. Similarly, if you believe a share price may rise, then you buy the share. The same rule applies to indices.

If you sell a share and have made a profit in a falling market, then to release your profits or to close the deal you simply buy the share back. Similarly, to close a position on a buy, you would sell.

One of the biggest advantages spread betting offers is it is free from capital gains tax if you are a UK investor and tax payer. Tax rules are complicated, vary from country to country and can also change at any time. Therefore, to ensure that you have the correct tax information that applies to you, you should contact a professional tax adviser.

Another advantage of spread betting is the fact that there are no fees or charges to be paid relating to a deal. The only charge is though what is known as the dealing spread. Simply put, the dealing spread is the difference between the buy price and the sell price.

You can also spread bet with a relatively small deposit. When opening a position, you may only need to deposit around 5% of the value of the transaction. The amount of deposit varies from spread betting provider to provider and from market to market. However, it is absolutely essential to take into account that even with a 5% deposit, you are risking up to 100% of the transaction amount. So with spread betting you can lose more than the amount you deposit initially

Therefore the use of stop losses and limits are essential. For a slightly higher dealing spread, spread betting providers allow a guaranteed stop loss or limit. The terms and conditions of your spread betting provider should be checked to understand how each providers stop loss and limit policy applies.

Spread betting allows for betting across many markets, making almost a whole day of trading possible. Spread betting is not just limited to shares, you can bet on commodities, indices and even sports events.

A typical spread bet offers on a soccer game may consist of the number of goals each team scores, number of corners, number of fouls and many more.

However, spread betting carries a very big risk. That is the amount of money you can lose, especially if you do not employ stop losses and limits. Therefore, it is essential appropriate professional financial advice is taken. It should also be noted that the value of your bet can go up as well as down in value. You can also lose more money than your original investment and deposit.

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