What Is Spread Betting Stocks
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What Is Spread Betting Stocks
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% 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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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, 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
Spread bet on over 10,000 financial assets
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.
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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.
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Spread betting is a tax-efficient* way of speculating on the price movement of thousands of global financial instruments , including spread betting forex , indices, 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 margin trading ). 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. Watch our spread betting tutorial using the Next Generation platform. If you're ready to trade, open an account now.
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. 73% 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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Spread betting - Wikipedia
What is Spread Betting and How Does it Work? | CMC Markets
What Is Spread Betting ? How To Spread Bet In 2021| Learnbonds
What is Spread Betting and How Does it Work? | IG UK
What is spread betting ?
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Spread betting is a form of complex trading that allows you to buy and sell a range of financial instruments without owning the asset.
Competitive fees
Up to 1:30 leverage
Mobile app available
FCA regulated
Note: The risks of spread betting should not be understated. You stand the chance of losing your entire investment, so do tread with caution.
Note: The only way to avoid having your margin liquidated is to deposit more money into the spread betting platform . You would normally receive a notification from the broker letting you know that you are approaching liquidation. This gives you the option of deciding whether or not you want to keep the bet open or cut your losses.
All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
Pepperstone: Our Recommended Spread Betting Broker
Pepperstone: Our Recommended Spread Betting Broker
The investment arena is jam-packed with complex financial products and services.
One such example of this is spread betting. In a similar nature to CFDs, spread betting allows you to speculate on the future price of an asset without actually owning it. Instead, you are merely guessing whether the asset will go up or down in price.
However, it is crucial that you have a firm grasp of how spread betting works before parting with your money.
In our Ultimate Spread Betting Guide , I am going to show you everything you need to know. This will include the ins and outs of how spread betting works, what you can trade, what risks you need to consider, and more.
Pepperstone: Our Recommended Spread Betting Broker 2020
Spread betting is a form of trading that allows you to buy and sell a range of financial instruments without actually owning the asset.
Instead, you are simply speculating on whether the price of the asset will go up or down. For example, let’s say that you wanted to invest in oil. By doing this through a spread betting platform, you would not be required to own or store the asset.
You simply need to choose how much you want to invest and whether you believe the future price will go up or down. This is why people often think that spread betting and CFD (contract-for-difference) platforms are one of the same thing, as the investment process is very similar.
However, spread betting is different from other forms of trading due to the way that your stake is calculated. Let’s take a look at a quick example so that you can see how a spread betting trade would be structured.
Let’s say that you want to speculate on the price of IBM stocks. After performing some analysis on the company, you feel that IBM is heavily undervalued. This means that you are going to place a ‘buy’ order, which means you believe the price will increase.
The current ‘sell’ price is £250, and the ‘buy’ price is £252. This means that the ‘spread’ is 2 (the difference between £250 and £252). We’ll cover the spread in more detail further down. Moving on, you now need to think about how much you want to stake per ‘point’. In this example, each dollar that IBM moves in the market will represent 1 point. You decide to stake £10 per point.
A few hours after placing your trade, IBM stocks are now valued at £262. This is great for your trade, as you purchased a buy order. As you opened the trade at £252, this represents a profit of 10 points. Your stake was £10 per point, so you made a total of £100.
One of the biggest advantages of using a spread betting platform is that you will have the option of going ‘long’ or ‘short’. If you were to go long on your trade, this means that you believe the price of the asset will increase . If you were instead to go short, you would be speculating that the price of the asset will go down . This is something that you cannot do when you purchase stocks in the traditional way.
Let’s say that you went long on gold at an original buy price of £1,000, at £1 per point. If the price of gold increased to £1,200, you would have made £200 (200 points x £1). If the price of gold went down to £800, you would have lost £200.
Shorting at a spread betting platform works in exactly the same way as going long but in reverse. For example, let’s say that you went short on oil at an original sell price of £500, at £2 per point. If the price went down to £450, you would have made £100 (50 points x £2). If the price of gold went up to £550, you would have lost £100.
If you were to place a bet at a trackside bookmaker, you would always know how much you were staking, and how much you stood to win. For example, if you staked £100 at 3/1, you would either collect £400 (£100 x 3/1) or lose your original £100 stake. However, spread betting works in a completely different way, as there is technically no limit to the amount you can make or lose.
In order to get your head around this, you need to have a firm understanding of the ‘point’ system. As I have loosely covered in some of my spread betting examples so far, you need to decide how much you want to stake per point. The point will vary depending on the type of asset you are trading. For example, trading stocks and shares might see the point set at every £1 movement of the underlying asset. If the asset increased by £7 in value, this would mean 7 points. If you were staking £20 per point, then your profit or loss would be £140 (7 points x £20 per point).
When you trade at a spread betting platform, you will be taking on leverage. This is a popular instrument in the financial space as it allows you to trade more than you have in your account. For example, let’s say that you are looking to make a trade worth £10,000, but you do so with 1:10 leverage. This means that you would only need to deposit £1,000 in your account (£10,000 * 10%). This would also mean that your gains are amplified by a factor of 10.
However, applying leverage to your spread betting investments also comes with its risks. While you stand the chance of amplifying your gains by a factor of 10, your losses would also be amplified by the same figure. By applying leverage to your trades, you also need to consider the fees.
This is because you are effectively borrowing the money from the broker. For example, if your trade is worth £25,000 at a leverage of 1:10, but you only deposit £2,500, then the broker is lending you the remaining £22,500. This is known as financing, and it is charged as a percentage of the amount you borrow. The financing fee is charged for every day that you keep your leveraged trade open.
Understanding how the margin works in spread betting is crucial.
Let’s say that you want to trade £20,000 worth of oil, and the margin requirement is 10%. This means that you can place your £20,000 trade by simply depositing £2,000. This gives you much greater exposure to your chosen marketplace. If your trade is successful, your gains are multiplied by a factor of 10. For example, if the price of oil went up by 5%, you would actually have made 50% because of the way the margin works.
However, if the price of oil went against you, then you could lose all of the margins that you put up.
Sticking with the same example as above, your margin on the trade is £2,500, which is 10% of the total order. If the price of oil went down by 10%, this would mean that your trade would be ‘liquidated’. This closes the trade automatically, and the margin would then be collected by the spread betting company.
The spread is the difference between the ‘buy’ and ‘sell’ price offered by the spread betting platform.
The percentage difference between the two numbers is how spread betting firms make a profit. For example, let’s say that the ‘sell’ price on Facebook stocks is £100, and the ‘buy’ price is £102. This means that for every £100 staked, the platform would make 2%, or £2.
The size of the spread can have a direct impact on the amount you are able to make from your spread betting trade.
Sticking with the same example as above, you would need to make a profit of at least 2% just to break even. As such, you should assess the average spread charged by a spread betting firm before signing up.
Unless you are trading a specific time-sensitive financial asset (such as futures or options), then you can keep your trade open for as long as you like.
However, you do need to make some considerations regarding the costs of financing. As I briefly noted earlier, you will need to pay financing costs when you apply leverage to trade.
As virtually all spread betting trades are based on leverage, these costs cannot be avoided. You will be charged a financing fee for each day that you keep your trade open. The platform should let you know what this amounts to when you set up your trade.
Spread betting first grew its roots in 1940s Chicago. It is believed that the concept was developed by a mathematics teacher and soon-to-be bookmaker.
However, spread betting as we know it today is still a relatively new phenomenon. Platforms were originally limited to institutional investors, and the number of tradable asset classes was limited.
When the first regulated spread betting platform reached the UK in the 1970s, investors could only invest in gold. Fast forward to 2021 and everyday investors can now access thousands of financial instruments at the click of a button from a mobile or desktop device.
Although this will depend on where you are a tax resident, spread betting is often classed as gambling. As most jurisdictions do not charge tax on gambling winnings, your spread betting profits could be tax-free . Gains made on the stock markets will always be taxed via capital gains.
Regardless of what asset class you are investing in, there will always be the risk that you can lose money.
This is no different from the spread betting industry. Your potential losses will come on two main fronts. Firstly, if the price of the asset you have traded goes against you, you’ll lose money.
For example, if you go long on oil, but the price of oil goes down, then you will have made a loss. These losses will only be realized once your trade has been closed.
The biggest risk that you need to consider is that of liquidation. This is because you will be required to cover the margin on your spread betting trades, which is based on the amount of leverage you obtain. For example, the broker might ask you to deposit 5% of the total amount you wish to trade. If the asset then went down by 5%, and you didn’t add more funds to your account to cover the margin, your trade would be closed automatically.
Although the risks of spread betting are plentiful, you can mitigate these risks by implementing a number of risk management strategies.
The most important risk strategy that you can employ is that of stop-loss orders. This is where you choose a pre-defined price to automatically close the trade, in the event that the trade goes against you. For example, let’s say that you go long on Twitter shares at £120. As you do not want to lose more than 10% on your trade, you can install a stop-loss order at £108. This means that the trade will automatically close at a loss of 10% if the price of Twitter hits £108. If you don’t utilize a stop-loss order on your trades, you could lose a significant amount of money.
In the same way that you should install a stop-loss order to protect yourself from the risks of a sudden market downturn, you should also think about cashing out profits automatically. This is known as a ‘take profit’ order, and you can set this at any amount. For example, let’s say that you go long on natural gas at a buy price of £150. You might decide to set your take profit order at 20%, which means the trade would close automatically when the price hits £180.
You should only trade markets that you know well. If you have good knowledge of currencies, then focus on forex. Similarly, if your experience is from within the traditional equities space, you should only trade stocks and shares. By trading markets that you don’t know well, you stand a much higher chance of losing money.
Market gapping is when the price of an asset changes outside of standard trading hours. If the move goes against you, you won’t be able to close the trade until the markets reopen. A standard stop loss will not protect you in this scenario either. However, although it will cost you slightly more in fees, you should consider installing a ‘guaranteed stop-loss’. This will ensure that you close your trade automatically, even if market gapping occurs.
Regardless of how you decide to trade, losses are something that all investors experience. You need to be emotionally prepared for this, as some spread betting traders are unable to handle the effects of losing money. If and when one of your trades is unsuccessful, don’t dwell on it. If you do, you might find that you engage in more reckless trades in order to recoup the loss. Crucially, if a trade is going against you and you haven’t set-up a stop-loss order, know when to cut your losses.
If you have read my guide on spread betting from start to finish, then you should now have a good understanding of how the industry works.
As you now know, traders are fond of spread betting platforms because of the ease at which they can access the financial markets. Whether it’s currencies, stocks, and shares, futures, indices, or commodities – spread betting allows you to speculate on assets in a matter of seconds. Spread betting also enables you to wager more than you have in your account via leverage.
However, you should also have a firm grasp of the risks of spread betting. As I have outlined in my guide, you should install a range of safeguards on your trades.
This should include stop-loss orders at a minimum, as well as ‘guaranteed’ stop-loss orders to cover market gapping. Just make sure you are fully prepared for the risks of spread betting before you take the plunge.
Spread betting platforms typically offer thousands of financial instruments. This is likely to cover stocks and shares, commodities, currencies, futures, options, cryptocurrencies, and more.
The spread is the difference between the 'buy' and 'sell' price. This is how spread betting companies make a profit.
Spread betting sites usually support a full range of everyday payment methods. This includes debit/credit cards, e-wallets, and a bank transfer.
In order to remain compliant with anti-money laundering laws, all spread betting sites must verify your identity.
This will vary from site-to-site. Some spread betting platforms allow you to deposit just £50, while others will ask for more.
The minimum margin requirement will vary depending on the asset you are trading. While forex typically averages 1%, stocks and shares are usually around 10%.
If your trade goes against you by an amount equal to your margin, then your trade will be liquidated. This means the trade is closed automatically, and you'll lose your margin in its entirety.
Kane holds academic qualifications in the finance and financial investigation fields. With a passion for all-things finance, he currently writes for a number of online publications.
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