How To Place A Spread Bet
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How To Place A Spread Bet
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider . You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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What is spread betting?
You can sell (go short or short sell) if you think the price of an instrument is going to fall
You can trade on margin, so you only need to deposit a small percentage of the overall value of the trade to open your position. Remember, this means that your potential return on investment is magnified, as are your potential losses
Spread betting profits are tax-free*
You can trade on indices, forex, cryptocurrencies, commodities, global shares and treasuries
There is no separate commission charge to pay on spread bets
You get access to 24-hour markets
There is no stamp duty* to pay
Join a trading community committed to your success
Create a relevant trading plan and stick to it
Keep emotions aside from your trading
Evaluate market analysts’ news and write-ups as part of your analysis
Be aware of the macro environment through news outlets
Avoid recommendations and tips from unreliable sources, such as internet forums
Cut your losses short and let your profits run
Test new strategies on your spread betting demo account
Open a spread betting
demo account or
live account .
Accounts can be opened via our website or mobile app. Deposit funds if you have chosen to open a live account.
Research financial instruments to trade. Browse our news and analysis section, and check the insights, market calendar and chart forum platform modules. Live account holders can also access Reuters news and Morningstar fundamental analysis for inspiration.
Go long and 'buy' or go short and 'sell'. Go ahead and ’buy’ the asset if you think the price will rise, or ’sell’ the asset if you think the price will fall.
Follow your spread betting market entry and exit strategy. Based on your trading plan, enter the market at a defined time, and use your risk mitigation strategies like stop-loss orders.
Enter your position size and place your trade. When placing a spread bet, be aware of the full trade value, and don’t forget to add stop-loss and take-profit orders.
Monitor your trade. Keep track of the open trade on your mobile or PC, and close the position as defined in your trading plan.
In this article, we’ll cover the essentials of spread betting , including strategies, tips and examples of a spread bet. This article should guide you towards understanding if spread betting is a suitable trading method for you. Watch the video below to get started.
Spread betting is a tax-efficient* way of speculating on the price movement of thousands of global financial instruments , including spread betting forex , indices, cryptocurrencies, commodities, shares and treasuries. Spread betting is one of the most common ways to trade on price action over several asset classes in the UK and Ireland. Spread betters can trade in both directions (‘buy’ or ‘sell’), and can make use of financial leverage to increase their trade exposure. With a spread betting account, you can choose between trading from home and on-the-go, as our platform is very flexible for traders of all experience levels.
With spread betting trading in the UK, you don't buy or sell the underlying instrument (for example a physical share or commodity). Instead, you place a spread bet based on whether you expect the price of an instrument to go up or down. If you expect the value of a share or commodity to rise, you would open a long position (buy). Conversely, if you expect the share or commodity to fall in value, you would take a short position (sell). You will make a profit or loss based on whether or not the market moves in your chosen direction.
With spread betting, you buy or sell a pre-determined amount per point of movement for the instrument you are trading, such as £5 per point. This is known as your spread bet 'stake' size. This means that for every point that the price of the instrument moves in your favour, you will gain multiples of your stake times the number of points by which the instrument price has moved in your favour. On the other hand, you will lose multiples of your stake for every point the price moves against you. Please note that with spread betting, losses are based on the full value of the position. See our spread betting examples for more information on how to spread bet.
The difference between the buy price and sell price is referred to as the spread. As one of the leading providers of spread betting in the UK, we offer consistently competitive spreads. See our range of markets for more information about our spreads.
Spread betting is a leveraged product, which means you only need to deposit a small percentage of the full value of the spread bet in order to open a position (also called trading on margin ). While margined (or leveraged) trading allows you to magnify your returns, losses will also be magnified as they are based on the full value of the position.
Many investors choose to spread bet on the financial markets as there are advantages of spreading betting over buying physical assets:
Before placing your trade, remember to make sure that you have followed risk-management guidelines as part of your strategy.
A spread-betting strategy is a pre-determined plan that helps you to define your market entry and exit points, and accompanying risk-management conditions such as stop-losses. When utilising a trading plan as part of your wider trading strategy, you aim to create a process in which you can monitor and forecast trade outcomes.
When trading with a spread betting account, it’s best practice to outline and follow your own trading strategy template relative to your needs. Strategy templates define a set of rules you should follow for every trade, helping you to remove emotions and irrational responses from your trading strategy. This helps to keep consistency within your trades, and can help improve your trading mindset. Visit our article on creating a trading strategy template , where you can follow an example to help define your strategy.
Every trader utilises different methods and strategies to suit their trading style. There are, however, some common spread betting tips a trader can utilise in order to maximise their trading potential:
See our article on spread betting tips and strategies , where we cover the topic in more depth.
It's a good idea to keep up to date with current affairs and news because real-world events often influence market prices. As an example, let's look at the UK government’s help to buy housing scheme.
Many believed that this scheme would boost UK home builders' profitability. Let's say you agreed and decided to place a buy spread bet on Barratt Developments at £10 per point just before the market closed.
Let's say that Barratt Developments was trading at 255 / 256 (where 255 is the sell price and 256 is the buy price). In this example, the spread is 1.
Let's assume that you opened a long position at £10 per point because you thought the price of Barratt Developments would go up. For every point that Barratts' share price moved up or down, you would have netted a profit or loss multiplied by your stake amount.
Let's say your spread betting prediction was correct and Barratt Developments' shares then rose to 306 / 307. You decide to close your buy bet by selling at 306 (the current sell price).
The price has moved 50 points (306 sell price – 256 initial buy price) in your favour. Multiply this by your stake of £10 to calculate your profit, which is £500.
Unfortunately, your spread betting prediction was wrong and the price of Barratt Developments' shares dropped over the next month to 206 / 207. You feel that the price is likely to continue dropping, so to limit your losses you decide to sell at 206 (the current sell price) to close the bet.
The price has moved 50 points (256 – 206) against you. Multiply this by your stake of £10 to calculate your loss, which is £500.
Learn more about spread betting for beginners and how to get started, and see our detailed spread betting examples. If you're ready to trade, open an account now.
Seamlessly open and close trades, track your progress and set up alerts
Spread betting works by traders speculating on whether a financial instrument’s price will rise or fall. Spread betters can go long (buy) if they believe the price of an asset will go up, or go short (sell) if they believe the market will start a downtrend. Learn more about spread betting .
Spread betting can be profitable, depending on multiple factors, but it’s also possible to make a loss. Most successful traders manage to make profitable trades by following a systematic trading plan, including in-depth fundamental and technical analysis, risk-management systems and several years of applicable knowledge. Try out a spread betting demo account to practise your trading plan.
Is spread betting taxable in the UK?
If you’re a resident in the UK or Ireland, profits from spread betting are free from capital gains tax (CGT). Additionally, spread betting transactions are exempt from stamp duty. Learn more about the risks of spread betting and the advantages of spread betting here. Please note tax treatment depends on your circumstances and tax laws are subject to change.
Spread betting providers are regulated by the Financial Conduct Authority (FCA) in the UK. It’s compulsory for all UK spread betting providers to be FCA regulated. Find out more about regulations at CMC Markets .
Losses above are based on the full value of the position. Past performance is not indicative of future performance.
^Prices are taken from our platform. Our prices may not be identical to prices for similar financial instruments in the underlying market.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
CMC Markets UK plc (173730) and CMC Spreadbet plc (170627) are authorised and regulated by the Financial Conduct Authority in the United Kingdom.
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How to Spread Bet on Shares, Forex and More | Spread Bet Calculator | IG UK
What is Spread Betting and How Does it Work? | CMC Markets
Spread betting - Wikipedia
How to place a spread bet trade - YouTube
How to spread bet | Capital.com
From Wikipedia, the free encyclopedia
^ The Sunday Times : "World Cup to kick off boom in spread betting"
^ "The perils of spread-betting" . The Times . Sep 20, 2007. Archived from the original on July 19, 2008.
^ "Gambling Commission - Home" . www.gamblingcommission.gov.uk .
^ Gambling Times: What are the Odds? Archived 2011-02-04 at the Wayback Machine
^ The Sunday Times: Spread betting
^ "Income Tax – Assessable income derivation of income – spread betting" . Australian Government ATO. 3 March 2010 . Retrieved 26 January 2011 .
^ Budworth, David. "Spread-betting fails investors in trouble" . thetimes.co.uk . Retrieved 11 October 2013 .
^ Pfanner, Eric. "Spread-bets on Cup venture into bizarre - Technology - International Herald Tribune" . The New York Times . Retrieved 11 October 2013 .
^ Rayman, Richard. "White Paper on Spread Betting" (PDF) . Cass Business School . Retrieved 11 October 2013 .
Spread betting is any of various types of wagering on the outcome of an event where the pay-off is based on the accuracy of the wager, rather than a simple "win or lose" outcome, such as fixed-odds (or money-line) betting or parimutuel betting .
A spread is a range of outcomes and the bet is whether the outcome will be above or below the spread. Spread betting has been a major growth market in the UK in recent years, with the number of gamblers heading towards one million. [1] Financial spread betting (see below) can carry a high level of risk if there is no "stop". [2] In the UK, spread betting is regulated by the Financial Conduct Authority rather than the Gambling Commission . [3]
The general purpose of spread betting is to create an active market for both sides of a binary wager , even if the outcome of an event may appear prima facie to be biased towards one side or the other. In a sporting event a strong team may be matched up against a historically weaker team; almost every game has a favorite and an underdog . If the wager is simply "Will the favorite win?", more bets are likely to be made for the favorite, possibly to such an extent that there would be very few betters willing to take the underdog.
The point spread is essentially a handicap towards the underdog. The wager becomes "Will the favorite win by more than the point spread?" The point spread can be moved to any level to create an equal number of participants on each side of the wager. This allows a bookmaker to act as a market maker by accepting wagers on both sides of the spread. The bookmaker charges a commission , or vigorish , and acts as the counterparty for each participant. As long as the total amount wagered on each side is roughly equal, the bookmaker is unconcerned with the actual outcome; profits instead come from the commissions.
Because the spread is intended to create an equal number of wagers on either side, the implied probability is 50% for both sides of the wager. To profit, the bookmaker must pay one side (or both sides) less than this notional amount. In practice, spreads may be perceived as slightly favoring one side, and bookmakers often revise their odds to manage their event risk.
One important assumption is that to be credited with a win, either team only needs to win by the minimum of the rules of the game, without regard to the margin of victory. This implies that teams in a winning position will not necessarily try to extend their margin—and more importantly, each team is only playing to win rather than to beat the point spread. This assumption does not necessarily hold in all situations. For example, at the end of a season, the total points scored by a team can affect future events such as playoff seeding and positioning for the amateur draft, and teams may "run up" the score in such situations. In virtually all sports, players and other on-field contributors are forbidden from being involved in sports betting and thus have no incentive to consider the point spread during play; any attempt to manipulate the outcome of a game for gambling purposes would be considered match fixing , and the penalty is typically a lifetime banishment from the sport; such is the lack of tolerance for manipulating the result of a sporting event for such purposes.
Spread betting was invented by Charles K. McNeil , a mathematics teacher from Connecticut who became a bookmaker in Chicago in the 1940s. [4] In North America , the gambler usually wagers that the difference between the scores of two teams will be less than or greater than the value specified by the bookmaker , with even money for either option. An example:
Spreads are frequently, though not always, specified in half-point fractions to eliminate the possibility of a tie, known as a push . In the event of a push, the game is considered no action , and no money is won or lost. However, this is not a desirable outcome for the sports book, as they are forced to refund every bet, and although both the book and its bettors will be even, if the cost of overhead is taken into account, the book has actually lost money by taking bets on the event. Sports books are generally permitted to state "ties win" or "ties lose" to avoid the necessity of refunding every bet.
Betting on sporting events has long been the most popular form of spread betting. Whilst most bets the casino offers to players have a built in house edge, betting on the spread offers an opportunity for the astute gambler. When a casino accepts a spread bet, it gives the player the odds of 10 to 11, or -110. That means that for every 11 dollars the player wagers, the player will win 10, slightly lower than an even money bet. If team A is playing team B, the casino is not concerned with who wins the game; they are only concerned with taking an equal amount of money of both sides. For example, if one player takes team A and the other takes team B and each wager $110 to win $100, it doesn't matter what team wins; the casino makes money. They take $100 of the $110 from the losing bet and pay the winner, keeping the extra $10 for themselves. This is the house edge. The goal of the casino is to set a line that encourages an equal amount of action on both sides, thereby guaranteeing a profit. This also explains how money can be made by the astute gambler. If casinos set lines to encourage an equal amount of money on both sides, it sets them based on the public perception of the team, not necessarily the real strength of the teams. Many things can affect public perception, which moves the line away from what the real line should be. This gap between the Vegas line, the real line, and differences between other sports books betting lines and spreads is where value can be found.
A teaser is a bet that alters the spread in the gambler's favor by a predetermined margin – in American football the teaser margin is often six points. For example, if the line is 3.5 points and bettors want to place a teaser bet on the underdog, they take 9.5 points instead; a teaser bet on the favorite would mean that the gambler takes 2.5 points instead of having to give the 3.5. In return for the additional points, the payout if the gambler wins is less than even money , or the gambler must wager on more than one event and both events must win. In this way it is very similar to a parlay . At some establishments, the "reverse teaser" also exists, which alters the spread against the gambler, who gets paid at more than evens if the bet wins.
In the United Kingdom , sports spread betting became popular in the late 1980s by offering an alternative form of sports wagering to traditional fixed odds , or fixed-risk, betting. With fixed odds betting , a gambler places a fixed-risk stake on stated fractional or decimal odds on the outcome of a sporting event that would give a known return for that outcome occurring or a known loss if that outcome doesn't occur (the initial stake). With sports spread betting, gamblers are instead betting on whether a specified outcome in a sports event will end up being above or below a ‘spread’ offered by a sports spread betting firm, with profits or losses determined by how much above or below the spread the final outcome finishes at.
The spread on offer will refer to the betting firm's prediction on the range of a final outcome for a particular occurrence in a sports event, e.g., the total number of goals to be scored in a football (US: soccer) match, the number of runs to be scored by a team in a cricket match or the number of lengths between the winner and second-placed finisher in a horse race.
The gambler can elect to ‘buy’ or ‘sell’ on the spread depending on whether they think the final outcome will be higher than the top end of the spread on offer, or lower than the bottom end of the spread. The more right the gambler is then the more they will win, but the more wrong they are then the more they can lose.
The level of the gambler's profit or loss will be determined by the stake size selected for the bet, multiplied by the number of unit points above or below the gambler's bet level. This reflects the fundamental difference between sports spread betting and fixed odds sports betting in that both the level of winnings and level of losses are not fixed and can end up being many multiples of the original stake size selected.
For example, in a cricket match a sports spread betting firm may list the spread of a team's predicted runs at 340 – 350. The gambler can elect to ‘buy’ at 350 if they think the team will score more than 350 runs in total, or sell at 340 if they think the team will score less than 340. If the gambler elects to buy at 350 and the team scores 400 runs in total, the gambler will have won 50 unit points multiplied by their initial stake. But if the team only scores 300 runs then the gambler will have lost 50 unit points multiplied by their initial stake.
It is important to note the difference between spreads in sports wagering in the U.S. and sports spread betting in the UK. In the U.S. betting on the spread is effectively still a fixed risk bet on a line offered by the bookmaker with a known return if the gambler correctly bets with either the underdog or the favourite on the line offered and a known loss if the gambler incorrectly bets on the line. In the UK betting above or below the spread does not have a known final profit or loss, with these figures determined by the number of unit points the level of the final outcome ends up being either above or below the spread, multiplied by the stake chosen by the gambler.
For UK spread betting firms, any final outcome that finishes in the middle of the spread will result in profits from both sides of the book as both buyers and sellers will have ended up making unit point losses. So in the example above, if the cricket team ended up scoring 345 runs both buyers at 350 and sellers at 340 would have ended up with losses of five unit points multiplied by their stake.
In addition to the spread bet, a very common "side bet" on an event is the total (commonly called the over/under or O/U ) bet. This is a bet on the total number of points scored by both teams. Suppose team A is playing team B and the total is set at 44.5 points. If the final score is team A 24, team B 17, the total is 41 and bettors who took the under will win. If the final score is team A 30, team B 31, the total is 61 and bettors who took the over will win. The total is popular because it allows gamblers to bet on their overall perception of the game (e.g., a high-scoring offensive show or a defensive battle) without needing to pick the actual winner.
In the UK, these bets are sometimes called spread bets, but rather than a simple win/loss, the bet pays more or less depending on how far from the spread the final result is.
Example: In a football match the bookmaker believes that 12 or 13 corners will occur, thus the spread is set at 12–13.
In North American sports betting many of these wagers would be classified as over-under (or, more commonly today, total ) bets rather than spread bets. However, these are for one side or another of a total only, and do not increase the amount won or lost as the actual moves away from the bookmaker's prediction. Instead, over-under or total bets are handled much like point-spread bets on a team, with the usual 10/11 (4.55%) commission applied. Many Nevada sports books allow these bets in parlays , just like team point spread bets. This makes it possible to bet, for instance, team A and the over , and be paid if both
(Such parlays usually pay off at odds of 13:5 with no commission charge, just as a standard two-team parlay would.)
The mathematical analysis of spreads and spread betting is a large and growing subject. For example, sports that have simple 1-point scoring systems ( e.g., baseball , hockey , and soccer ) may be analysed using Poisson and Skellam statistics.
By far the largest part of the official market in the UK concerns financial instruments; the leading spread-betting companies make most of their revenues from financial markets, their sports operations being much less significant. Financial spread betting in the United Kingdom closely resembles the futures and options markets, the major differences being
Financial spread betting is a way to speculate on financial markets in the same way as trading a number of derivatives . In particular, the financial derivative Contract for difference (CFD) mirrors the spread bet in many ways. In fact, a number of financial derivative trading companies offer both financial spread bets and CFDs in parallel using the same trading platform.
Unlike fixed-odds betting, the amount won or lost can be unlimited as there is no single stake to limit any loss. However, it is usually possible to negotiate limits with the bookmaker:
Spread betting has moved outside the ambit of sport and financial markets (that is, those dealing solely with share, bonds and derivatives), to cover a wide range of markets, such as house prices. [5] By paying attention to the external factors, such as weather and time of day, those who are betting using a point spread can be better prepared when it comes to obtaining a favorable outcome. Additionally, by avoiding the favourite-longshot bias , where the expected returns on bets placed at shorter odds exceed that of bets placed at the longer odds, and not betting with one's favorite team, but rather with the team that has been shown to be better when playing in a specific weather condition and time of day, the possibility of arriving at a positive outcome is increased.
In the UK and some other European countries the profit from spread betting is free from tax. The tax authorities of these countries designate financial spread betting as gambling and not investing, meaning it is free from capital gains tax and stamp duty , despite the fact that it is regulated as a financial product by the Financial Conduct Authority in the UK. Most traders are also not liable for income tax unless they rely solely on their profits from financial spread betting to support themselves. The popularity of financial spread betting in the UK and some other European countries, compared to trading other speculative financial instruments such as CFDs and futures is partly due to this tax advantage. However, this also means any losses cannot be offset against future earnings for tax calculations.
Conversely, in most other countries financial spread betting income is considered taxable. For example, the Australian Tax Office issued a decision in March 2010 saying "Yes, the gains from financial spread betting are assessable income under section 6-5 or section 15-15 of the ITAA 1997". [6] Similarly, any losses on the spread betting contracts are deductible. This has resulted in a much lower interest in financial spread betting in those countries.
Suppose Lloyds Bank is trading on the market at 410p bid, and 411p offer. A spread-betting company is also offering 410-411p. We use cash bets with no definite expiry , or "rolling daily bets" as they are referred to by the spread betting companies.
If I think the share price is going to go up, I might bet £10 a point ( i.e., £10 per penny the shares moves) at 411p. We use the offer price since I am "buying" the share (betting on its increase). Note that my total loss (if Lloyds Bank went to 0p) could be up to £4110, so this is as risky as buying 1000 of the shares normally.
If a bet goes overnight, the bettor is charged a financing cost (or receives it, if the bettor is shorting the stock). This might be set at LIBOR + a certain percentage , usually around 2-3%.
Thus, in the example, if Lloyds Bank are trading at 411p, then for every day I keep the bet open I am charged [taking finance cost to be 7%] ((411p x 10) * 7% / 365 ) = £0.78821 (or 78.8p)
On top of this, the bettor needs an amount as collateral in the spread-betting account to cover potential losses. Usually this is either 5 or 10% of the total exposure you are taking on but can go up to 100% on illiquid stocks. In this case £4110 * 0.1 or 0.05 = £411.00 or £205.50
If at the end of the bet Lloyds Bank traded at 400-401p, I need to cover that £4110 – £400*10 (£4000) = £110 difference by putting extra deposit (or collateral) into the account.
The punter usually receives all dividends and other corporate adjustments in the financing charge each night. For example, suppose Lloyds Bank goes ex-dividend with dividend of 23.5p. The bettor receives that amount. The exact amount received varies depending on the rules and policies of the spread betting company, and the taxes that are normally charged in the home tax country of the shares.
According to an article in The Times dated 10 April 2009, approximately 30,000 spread bet accounts were opened in the previous year, and that the largest study of gambling in the UK on behalf of the Gambling Commission found that serious problems developed in almost 15% of spread betters compared to 1% of other gambling. [7] A report from Cass Business School found that only 1 in 5 gamblers ends up a winner. [8] As noted in the report, this corresponds to the same ratio of successful gamblers in regular trading. [9] Evidence from spread betting firms themselves actually put this closer to being 1 in 10 traders as being profitable. [ citation needed ]
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