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 CFDs work and whether you can afford to take the high risk of losing your money.

What is spread betting? The rules explained

Published on: 08/10/2021 | Modified on: 25/01/2023

Financial spread betting is a tax-free* form of derivative trading that allows traders to bet on the price movements of financial assets such as stocks, forex and indices.

This article on financial spread betting will guide you towards understanding if it's a suitable trading method for you, so watch the video below and continue reading about what is spread betting in five key points to get started.


  • It’s a popular form of short-term derivative trading (only available in the UK and Ireland)
  • Bet on both sides of the market through buying (going long) or selling (going short)
  • Leverage your access to the markets by depositing a fraction of the full trade value, which can amplify your potential profit or loss equally
  • The spread represents the difference between the buy and sell price
  • Your stake size is measured by ‘points of movement’ which helps to calculate profit or loss

What is Spread Betting?

What is spread betting?

Spread betting meaning: a type of betting or wagering on the outcome of an event, where the payout is based on the accuracy of the bet, rather than a fixed win or lose outcome (typically seen with investments).

Spread betting is a tax-efficient* way of speculating on the price movements of thousands of global financial instruments. It's one of the most common ways to trade on price action over several asset classes. As it is a financial derivative product, you can trade in both directions (‘buy’ or ‘sell’) and can make use of financial leverage to increase your trade exposure.

How does it work?

So, how does spread betting work? When financial betting in the UK, you don't buy or sell the underlying instrument (for example a physical share or raw material). Instead, you place a bet on a derivative based on whether you expect the price of the underlying instrument to go up or down.

If you expect the value of an asset to rise, you may open a long position (buy). Conversely, if you expect the asset to fall in value, you may take a short position (sell). You will make a profit or loss based on whether or not the market moves in your chosen direction.

What is a stake?

With the product, you buy or sell a predetermined amount per point of movement for the instrument you are trading (for example, £1 per point). This is known as your 'stake' size. The bigger the stake, the greater your exposure will be for your chosen asset.

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. On the other hand, you will lose multiples of your stake for every point the price moves against you. Please note that losses are based on the full value of the position.

See our spread betting examples​ for more information.

What is a spread and how is it calculated?

The difference between the buy (bid) price and sell (ask) price is referred to as the spread in trading. This is where a broker's commission is made, as the buy price will be slightly higher and the sell price slightly lower than the underlying market's price.

Trading spreads are implemented by market makers, brokers and other providers to add costs to a trading opportunity, based on supply and demand. Depending on how expensive, volatile and liquid an asset is, the spread will fluctuate along with its price and trading volume.

The spread of an instrument is a representation of how closely aligned the supply and demand are. If the bid-ask spread is very low, there is a common consensus on an asset’s price, whereas if there are some disparities between buyers’ and sellers’ opinions on an asset’s worth, the spread is generally wider.

Say for example, Apple stock is trading for a buy (bid) price of 141.10 and a sell (offer) price of 141.14, the spread would be 4.

Margin and leverage explained

Derivatives are a type of leveraged product, which means you only need to deposit a small percentage of the full value of the trade in order to open a position (also called margin trading​). While margin (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.

As an example, common margin rates for indices start at 5%. This means that you only have to deposit 5% of the asset's full value in order to open a position, allowing you to trade with 20x leverage. This is equivalent to a 20:1 leverage ratio.

Leverage and adverse price movements lead to an increased risk of rapid capital loss.

What are the benefits of spread betting?

Many investors choose this method when trading on the financial markets as there are advantages of spread betting over buying physical assets, such as the following:

  • 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

  • Profits are tax-free* in the UK, so no stamp duty or capital gains tax is required to be paid or reported to the HMRC. Learn more about how spread bets are taxed

  • You can trade on a wide range of markets, including indices, forex, commodities, global stocks, and treasuries

  • Access to 24-hour markets, so you can trade on assets like the UK 100 out of regular trading hours

  • You can spread bet anywhere in the UK or Ireland via desktop, mobile or tablet device. Our mobile app also features fully interactive charts, with over 40 technical indicators and mobile-optimised layouts

  • Multiple order types to choose from, including market, limit and stop-entry orders

  • There is no separate commission charge to pay (other fees and charges apply)

Spread bet on 12,000+ financial instruments

What are the risks to consider?

  • The use of leverage can lead to loss of capital if your trade is unsuccessful, as profit and loss is magnified. However, retail client accounts have negative balance protection, so your losses will be limited to the value of the funds in your account. There is a risk of loss of any capital that you deposit to your live account.

  • If your account balance is no longer sufficient to cover the margin required to keep your current positions open, your account might be subject to a Close Out, also known as Liquidation. This means that all your open positions might be automatically closed once your account balance falls below the close out level. Find out more about the specific rules applicable to Liquidations

  • You are also subject to costs such as overnight fees​, which can be positive or negative depending on the direction of your position and the applicable holding rate

  • The financial markets can be volatile and lead to gapping and slippage of your positions, so it’s important that you monitor your positions carefully. For example, the market might not reopen at the same price it closed at when the last trading day ended. This risk is accrued when you are spread betting on products affected by current political or economic events, or when a position is kept open over the weekend, as CMC Markets does not offer weekend trading

Before placing your trade, remember to make sure that you have followed risk-management guidelines​ as part of your strategy.

Which spread betting strategies are the most effective?

A spread betting strategy is a predetermined plan that helps you to define your market entry and exit points and any 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 look to potentially forecast trade outcomes.

When trading with a financial betting account, it may be good practice to outline and follow your own trading strategy template relative to your needs. Templates help to define a set of rules you should follow for every trade, helping to remove emotions and irrational responses from your trading strategy. This keeps consistency within your trades and can help improve your trading mindset. Below are two simple example of strategies that traders may use.

Buy-and-hold approach

This strategy involves opening a long position (placing a buy bet) if you think that the value of your chosen asset will increase. By buying at a lower price, if your prediction is correct and the asset does increase in value, you can then sell for a higher price. This will result in a profit, although if your prediction is incorrect and the market moves in the other direction, this would result in equal losses.


This takes the opposite approach of a buy-and-hold strategy. If you think that the asset’s value is due to fall in price, you can take a short position and place a sell bet. By selling at a higher price, you can then buy the asset back at a lower price once it has dropped, making a profit from the difference in value.

Shorting is a very risky strategy, so consider researching how the markets work and apply any risk-management tools before opening a trade in order to cap losses to a minimum.

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Example of share trading

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 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 Barratt’s share price moved up or down, you would have netted a profit or loss multiplied by your stake amount.

Example 1: winning bet

Let's say your prediction was correct and Barratt Development stock 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.

Example 2: losing bet

Unfortunately, your prediction was wrong and the price of Barratt Development stock 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.

Spread betting tips to keep in mind

Every trader utilises different methods and strategies to suit their trading style. There are, however, some common tips a trader can utilise in order to maximise their trading potential:

  • 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 your strategies using a demo account with virtual funds

How to spread bet

Learn how to spread bet by following the below steps.

  1. Open a demo account or live account. Accounts can be opened via our website or spread betting app. Deposit funds if you have chosen to open a live account.
  2. 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.
  3. 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.
  4. Follow your 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.
  5. Enter your position size and place your trade. Be aware of the full trade value and don’t forget to add stop-loss and take-profit orders.
  6. Monitor your trade. Keep track of the open trade on your mobile or PC, and close the position as defined in your trading plan.


Can you make a profit spread betting?

It 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 demo account to practise your trading plan.

What are the similarities and differences with CFD trading?

Both are derivative trading products that allow you to speculate on both sides of the market and use leverage to gain greater market exposure. However, you will be taxed on any profits made from CFD trading* as these are subject to capital gains tax. Read an overview of the two products here.

In which direction can I trade?

Traders can either open a long (buy) position which is most common if they think the value of an asset is due to increase, or open a short (sell) position if they think it’s due to fall. This allows you to take advantage of both sides of the market which differs in comparison with traditional investing.

How is profit and loss calculated?

Profits and losses are calculated by multiplying your original stake size (e.g. £10 per point) by the number of points that the price of the instrument has moved either in your favour or against you. These are based on the full value of the leveraged position rather than your original deposit amount. Refer to our article for more in-depth spread betting examples.

What order types are available?

Aside from basic order types like market and limit orders, you can apply stop-losses to specify the price at which a position will be closed out if the market moves against you, as well as take-profit orders, where you can set predetermined target levels to secure the profit from your trades. See an overview of our execution types.

Can I hedge with spread bets?

Traders can offset potentially negative price movements by opening multiple positions on the same financial asset, which is known as a hedging strategy. For example, if you’re holding a long position on a stock which is declining in value, you could open a parallel short bet on the stock to offset any loss from the old position with a new profit.

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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