Spread Betting London

Spread Betting London

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Spread betting allows traders to bet on the direction of a financial market without actually owning the underlying security. Spread betting is sometimes promoted as a tax-free, commission-free activity that allows investors to speculate in both bull and bear markets, but this remains banned in the U.S. Like stock trades, spread bet risks can be mitigated using stop loss and take profit orders.

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Spread betting refers to speculating on the direction of a financial market without actually owning the underlying security.

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Spread betting is a derivative strategy, in which participants do not own the underlying asset they bet on, such as a stock or commodity. Rather, spread bettors simply speculate on whether the asset's price will rise or fall, using the prices offered to them by a broker.

As in stock market trading, two prices are quoted for spread bets—a price at which you can buy (bid price) and a price at which you can sell (ask price). The difference between the buy and sell price is referred to as the spread. The spread-betting broker profits from this spread, and this allows spread bets to be made without commissions, unlike most securities trades.

Investors align with the bid price if they believe the market will rise and go with the ask if they believe it will fall. Key characteristics of spread betting include the use of leverage, the ability to go both long and short, the wide variety of markets available, and tax benefits.

If spread betting sounds like something you might do in a sports bar, you're not far off. Charles K. McNeil, a mathematics teacher who became a securities analyst—and later a bookmaker—in Chicago during the 1940s has been widely credited with inventing the spread-betting concept. But its origins as an activity for professional financial-industry traders happened roughly 30 years later, on the other side of the Atlantic. A City of London investment banker, Stuart Wheeler, founded a firm named IG Index in 1974, offering spread betting on gold. At the time, the gold market was prohibitively difficult to participate in for many, and spread betting provided an easier way to speculate on it.

Despite its American roots, spread betting is illegal in the United States.

Let's use a practical example to illustrate the pros and cons of this derivative market and the mechanics of placing a bet. First, we'll take an example in the stock market, and then we'll look at an equivalent spread bet.

For our stock market trade, let's assume a purchase of 1,000 shares of Vodafone (LSE: VOD ) at £193.00. The price goes up to £195.00 and the position is closed, capturing a gross profit of £2,000 and having made £2 per share on 1,000 shares. Note here several important points. Without the use of margin, this transaction would have required a large capital outlay of £193k. Also, normally commissions would be charged to enter and exit the stock market trade. Finally, the profit may be subject to capital gains tax and stamp duty.

Now, let's look at a comparable spread bet. Making a spread bet on Vodafone, we'll assume with the bid-offer spread you can buy the bet at £193.00. In making this spread bet, the next step is to decide what amount to commit per "point," the variable that reflects the price move. The value of a point can vary.

In this case, we will assume that one point equals a one pence change, up or down, in the Vodaphone share price. We'll now assume a buy or "up bet" is taken on Vodaphone at a value of £10 per point. The share price of Vodaphone rises from £193.00 to £195.00, as in the stock market example. In this case, the bet captured 200 points, meaning a profit of 200 x £10, or £2,000.

While the gross profit of £2,000 is the same in the two examples, the spread bet differs in that there are usually no commissions incurred to open or close the bet and no stamp duty or capital gains tax due. In the U.K. and some other European countries, the profit from spread betting is free from tax.

However, while spread bettors do not pay commissions, they may suffer from the bid-offer spread, which may be substantially wider than the spread in other markets. Keep in mind also that the bettor has to overcome the spread just to break even on a trade. Generally, the more popular the security traded, the tighter the spread, lowering the entry cost .

In addition to the absence of commissions and taxes, the other major benefit of spread betting is that the required capital outlay is dramatically lower. In the stock market trade, a deposit of as much as £193,000 may have been required to enter the trade. In spread betting, the required deposit amount varies, but for the purpose of this example, we will assume a required 5% deposit. This would have meant that a much smaller £9,650 deposit was required to take on the same amount of market exposure as in the stock market trade.

The use of leverage works both ways, of course, and herein lies the danger of spread betting. As the market moves in your favor, higher returns will be realized; on the other hand, as the market moves against you, you will incur greater losses. While you can quickly make a large amount of money on a relatively small deposit, you can lose it just as fast.

If the price of Vodaphone fell in the above example, the bettor may eventually have been asked to increase the deposit or even have had the position closed out automatically. In such a situation, stock market traders have the advantage of being able to wait out a down move in the market, if they still believe the price is eventually heading higher.

Despite the risk that comes with the use of high leverage, spread betting offers effective tools to limit losses .

Risk can also be mitigated by the use of arbitrage, betting two ways simultaneously.

Arbitrage opportunities arise when the prices of identical financial instruments vary in different markets or among different companies. As a result, the financial instrument can be bought low and sold high simultaneously. An arbitrage transaction takes advantage of these market inefficiencies to gain risk-free returns.

Due to widespread access to information and increased communication, opportunities for arbitrage in spread betting and other financial instruments have been limited. However, spread betting arbitrage can still occur when two companies take separate stances on the market while setting their own spreads.

At the expense of the market maker, an arbitrageur bets on spreads from two different companies. When the top end of a spread offered by one company is below the bottom end of another’s spread, the arbitrageur profits from the gap between the two. Simply put, the trader buys low from one company and sells high in another. Whether the market increases or decreases does not dictate the amount of return.

Many different types of arbitrage exist, allowing for the exploitation of differences in interest rates, currencies, bonds, and stocks, among other securities. While arbitrage is typically associated with risk-less profit, there are in fact risks associated with the practice, including execution , counterparty, and liquidity risks. Failure to complete transactions smoothly can lead to significant losses for the arbitrageur. Likewise, counterparty and liquidity risks can come from the markets or a company’s failure to fulfill a transaction.

Continually developing in sophistication with the advent of electronic markets, spread betting has successfully lowered the barriers to entry and created a vast and varied alternative marketplace.

Arbitrage, in particular, lets investors exploit the difference in prices between two markets, specifically when two companies offer different spreads on identical assets.

The temptation and perils of being overleveraged continue to be a major pitfall in spread betting. However, the low capital outlay necessary, risk management tools available, and tax benefits make spread betting a compelling opportunity for speculators.

Post author

By George Rossi

Post date

August 3, 2021

No Comments on Best Spread Betting Platform 2022

Author of this review

By George Rossi

For this list, we have searched and tested several spread betting platforms that are operating in the United Kingdom.
We opened real accounts and deposited between $4,000 and $8,000 with each of the brokers. We placed real trades in each popular market to get the real spreads .
We also reached out to customer support to solve issues that we hd encountered. Finally, we withdrew our funds to see if there is any issue with the withdrawal process.
We handpick the best spread betting platform based on our trading data and experience as a trader.
Spread betting is a derivative product that allows traders to speculate on the price movement of any financial instrument, let it be forex, stocks, indices or commodities.
Similar to any other derivative product, traders do not own the underlying asset of spread betting. They only place bets on whether the price of the underlying asset will go up or down and profit from that.
Financial spread betting was first introduced by the London-based IG Index (a subsidiary of the IG Group) in 1974. In fact, it remains very similar to the original spread betting used in sports.
Spread betting is leveraged trading, meaning traders can take big positions with only a percentage of margin deposits to maximize their profits, but the higher the leverage, the higher the risk.
Spread betting is not legal in most countries, but is very popular in the United Kingdom and is regulated by the Financial Conduct Authority (FCA).
Some of the advantages of spreading are:
In spread betting, traders bet on the per-point market price movement of the underlying asset. The betting amount depends on the traders.
For example, in the case of HSBC share , which is trading at 400p on the stock exchange, spread bettors can either long or short the stock . They can bet £100 on every point movement of the HSBC stock. If the HSBC stock price goes up to 410p, the trader will profit by £1,000 (£100 gained for each point movement, so £100 X 10 = £1,000).
If the bettor (or trader) shorts the HSBC shares and the stock price dips to 395p, then the profit will be £500 (£100 x 5).
But, in the case of the long or short position, the price of HSBC shares price moves in the opposite direction of the bet, the bettor will lose money. For a long position, if the price goes down to 390p, there will be a loss of £1,000 (£100 X 10).
The bettor has to deposit a margin amount with the broker for spread betting. In case of a loss-making bet, if the loss equals the margin amount, the broker will ask the bettor to deposit additional funds, also called the margin call . Else, the position will be closed.
In reality, the broker quotes an offer price (for buying) and a bid price (for selling) for each spread betting instrument . For HSBC shares, the offer price could be 401p, while the bid price could be 399p. The difference of 2p is the spread, and the broker makes a profit from this gap.
To select the best spread betting brokers, we tested and reviewed several forex brokers. We opened live accounts and deposited real money with each broker. We also placed real trades in popular markets to get the real picture of the spread and commission, trading platform, deposits and withdrawals conditions, education, and customer service.
We have picked IG Markets as the best overall spread betting platform and Broker.
IG Markets is the pioneer of financial spread betting as it invented the product in 1974. The broker offers spread betting under its Financial Conduct Authority (FCA) license in the UK.
IG offers spread betting in more than 17,000 markets that include forex, stocks, indices, and commodities. Traders can get maximum leverage of up to 30:1 on major currency pairs, while for company shares a minimum of 20% margin is required.
The broker also makes its fees transparent: with a minimum spread from 0.6 pips for currency pairs to 0.1 points for indices and stocks. It also has excellent customer service that is available around the clock.
We have picked Pepperstone as the best spread betting platform for beginners.
Headquartered in Australia, Pepperstone is relatively a new player in the brokerage space and was founded in 2010. It offers a separate spread betting account under its FCA license.
Pepperstone is perfect for new traders because of its extensive learning material on the financial market and spread betting. The broker provides services on MT4, MT5, and cTrader. It promises no dealing desk execution and also has a very good support team to help the traders.
We have picked OANDA as the best MT4 spread betting platform .
OANDA, which is regulated by the FCA, offers thousands of spread betting markets that range from forex and stocks to indices and commodities. It offers its services on the MT4 platform with some excellent indicators and advanced market analysis tools. The broker offers the MT4 platform on web, desktop and mobile devices.
The spreads offered by the broker are also on the lower side across markets. OANDA is a global broker and is regulated in many countries, but it offers spread betting only in the UK and Ireland.
We have picked City Index as the best spread betting account and platform with low spread.
When it comes to spreads of spread betting, City Index offers the best services. It spreads on the major currency pairs starts at 0.5 pips. The number is also on the lower side for share CFDs. The broker also highlights that it profits only from spreads on spread betting and does not charge any commission.
City Index is operated by Gain Capital, which is a subsidiary of StoneX. The broker is regulated by the FCA in the UK and it offers spread betting on more than 8,000 global markets.
We have picked CMC Markets as the best spread betting forex trading platform.
CMC Markets is one of the best platforms for spread betting services with forex instruments. It lists 339 currency pairs on its platforms for spread betting, while the total number of markets exceeds 10,000. It offers currency trading services on MT4, which is preferred by most traders. The broker also has no limitations on trading strategies, meaning it allows both hedging and scalping.
CMC Markets is headquartered in London. The FCA regulated broker is already licensed by several other licenses from global regulators . It is also a public company, so it has to disclose its financials every quarter making it a very safe platform.
Apart from the shortlisted platforms, here is a complete list of brokers that offers spread betting services on various markets, which we have tested and reviewed.
Traders usually have many questions related to generic trading-related queries. We tried to pick and answer some of the most important queries related to spread betting brokers.
Spread betting is legal and very popular in the UK and Ireland. These platforms are regulated by the Financial Conduct Authority, the country’s financial markets regulator and provide safe conditions for FX Currency spread betting. Some of the top spread betting platforms in the UK are:
For beginner bettors to enter spread betting they need to understand both the complex financial marketing and trading techniques, and open account with suitable for Beginners Accounts. Some of the best spread betting platforms for beginners are:
Spread betting is very popular with currency pairs as it is leveraged, and gains are not taxed. Some of the best forex spread betting platforms are:
Spread betting platforms only charge spreads on the markets from traders and there are usually no additional commissions. Some of the spread betting platforms with low spreads are:
MetaTrader4 or MT4 is the most popular trading platform for trading forex and CFDs, both among retail and professional traders. The top MT4 forex brokers with the lowest spreads are:
I am a well-rounded financial services professional experienced in fundamental and technical analysis, global macroeconomic research, foreign exchange and commodity markets and an independent trader.
Now I am passionate about reviewing and comparing forex brokers.
Everything you find on BrokerTested is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology
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