Spread betting

Quick definition

Spread betting is a way of speculating on price changes in the financial markets.

Key details

• With spread betting you never take ownership of any assets yourself, you simply bet on how you expect them to move.
• It offers the option of predicting price movements in both directions, so you can bet on prices to rise as well as fall.
• Unlike most forms of trading, you don’t have to pay tax on any money you make from spread betting.

What is spread betting?

It’s a means of predicting how a financial asset is going to perform by placing a bet on whether you think the price is going to rise or fall. You make money based on the amount of movement multiplied by the value of your stake.

When you spread bet, you don’t actually buy any of the assets themselves, it’s simply a means of speculating on which way the price is going to move. That means that there are fewer restrictions on when you can do it – you can place bets 24/7, not just during regular trading hours – and how, such as the fact you can bet on a price to go down as well as up.

Spread betting is often used in tandem with leverage, so that you can place bets that are much larger than the value of your initial deposit. That gives you the chance to get exposure to assets which might otherwise be out of your reach, or to more assets than would have been possible from your original investment.

How does spread betting work?

By offering a buy and sell price that’s based on the performance of the underlying asset. You simply have to decide which bet to place, depending on how you think the asset is going to perform. The difference between these two prices is known as the ‘spread’.

For each bet, you decide on a stake per ‘point’ of movement. If a stock rose from £1.50 to £2 then it would have gone up 50 points, so that a £10 stake would have made £500 in profit. However, the reverse is also true: if the price had dropped by 50 points then that same stake would have made a £500 loss.

What’s the difference between spread betting and CFD trading?

Spread betting is tax-free, while you have to pay taxes on profits you make through CFD trading. Beyond that distinction, there is very little difference between the two. In both cases, you can speculate on how prices are going to change without having to take ownership of the assets themselves.

Spread betting markets

Spread betting covers a wide range of markets and underlying assets, which is among its main benefits. Investors can bet on the movement of shares, with spread betting brokers usually offering the option of betting on shares of companies such as Vodafone and Apple, which are well-known even to the less experienced trader. Investors can also bet on the movement of indices such as the Dow Jones and NASDAQ, as well as spread bet on forex currency pairs.

Spread betting commodities is another popular underlying asset category, with investors able to bet on the movement of crude oil, precious metals (gold, silver, etc.), or on the market performance of agricultural commodities such as coffee and wheat. Although less popular, financial instruments such as options and futures can also be used for financial spread betting.

Choosing a particular asset over another should depend mostly on the knowledge and experience of the trader. Investors should keep in mind that when betting on a given asset, following any news and developments which might influence the asset price is a must. Tension in the Middle East for instance is likely to have an immediate impact on the price of oil, while news about the financial performance of major companies will influence the price of shares as well as the performance of major market indices.

Different brokers service a range of, or very specific, markets. In order to trade you’ll need to find a spread betting broker. Our guides rank the best broker platforms:

• Best spread betting platforms
• Forex spread betting brokers
• Crypto spread betting brokers
• Spread betting using commodity platforms