What is spread betting and how does it work? An in-depth guide
Published on: 08/10/2021 | Modified on: 22/03/2023
Spread betting is a popular form of derivative trading that enables investors to speculate on the price movements of financial assets, such as indices, forex, commodities, and shares, without owning the underlying asset. Profits are tax-free in the UK^.
Spread betting is margin-based, allowing traders to deposit a set percentage of the full value of a trade, and therefore offers greater exposure to the markets compared with traditional investing. Trading with margin (or leverage) also amplifies both profits and losses equally.
KEY POINTS
- Spread betting (available only in the UK and Ireland) is tax-free^
- You don’t own the underlying asset; instead you speculate on the direction you think the market will go
- The spread represents the difference between the buy and sell prices
- You can trade on both sides of the market and go long (‘buy’) or short (‘sell’) depending on your view
- As spread betting is a leveraged product, you only need to deposit a percentage of the full trade value. This offers greater exposure to the markets compared with traditional investing. Your profits and losses are amplified based on the full value of the trade
- You can spread bet outside of standard trading hours on some instruments, even when the underlying market is closed