MARKETS: SPREAD BETTING
Spread Betting is a leverage tool, which has revolutionised the way in which retail traders can profit in the market. Retail traders like spread betting for reasons listed below:
- Tax Free – Spread Betting is tax free from Capital Gains Tax, Income Tax and Stamp Duty.
- Ability to go Long or Short – You can make money whether stock prices are rising or falling.
- Guaranteed Stop Loss – With some spread betting companies you can have a guaranteed 'stop loss' so that if the price falls to a certain level your trade is automatically closed. This means you know your maximum exposure.
- 24 Hour Dealing – You can place a spread bet even when the underlying market is closed.
- No commission – Spread Betting firms charge you a spread (the difference between the bid and the offer) instead of a commission.
- Bet in Sterling – You can trade U.S. markets for example using pound sterling.
Spread Betting gives you two choices; you can buy (Betting prices to rise) or sell (betting prices to fall). The difference between this buying and selling price is the spread.
The price at which you can buy will always be higher than the price at which you can sell. As soon as you enter a position you start at a loss equivalent to the spread. You will only be in profit once you have beaten this spread.
You place a bet size, which is a price per point, which determines how much you stand to gain or lose. Spread Bets are denominated in pounds per point. If you buy £10 per point, you make £10 for every point that the stock rises. £10 per point is the equivalent to buying 1000 shares. For example, on a FTSE stock one point is the equivalent to a 1p move in the share price.
Spread Betting firms allow you to trade on margin, giving you leverage on your funds.
Because you are not actually buying or selling the actual underlying instrument. the range of instruments that you ‘bet' on can be far greater than simply underlying shares.
You can bet on the spread bet of:
- Stock market indices such as the FTSE or NASDAQ
- Individual shares from the FTSE 100 and FTSE 250, but also from leading US and European shares
- Currencies, FX
- Commodities such as metals and oil
- Interest Rates both short term and long term
- Futures and options
- Bonds
