Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% 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.

What is spread betting? Everything you need to know

Published on: 08/10/2021 | Modified on: 18/05/2022

In this article, we’ll explain the essentials of financial spread betting, including strategies, tips and examples. At CMC Markets, we provide leveraged exposure to 9,000+ stocks and shares, 330+ forex pairs, 80+ stock indices, 100+ commodities, and 50+ treasuries.

This article should guide you towards understanding if it's a suitable trading method for you, so watch the video below to get started, read about spread betting explained in five key points, and open an account.

KEY POINTS

  • It’s a form of short-term derivative trading
  • You can speculate on both sides of the market (go long or short)
  • Leverage your access to the markets by depositing a fraction of the full trade value
  • The spread represents the difference between the buy and sell price
  • Your stake size is measured by ‘points of movement’

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 movement 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, betters can trade in both directions (‘buy’ or ‘sell’), and can make use of financial leverage to increase their trade exposure. With an account, you can choose between trading from home and on-the-go, as our platform is very flexible for traders of all experience levels.

So, how does spread betting work? Continue reading to find out more.

How does it 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 based on whether you expect the price of an 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.

How to get started

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.

How to place a trade

What is a stake?

With the product, you buy or sell a predetermined amount per point of movement for the instrument you are trading, such as £5 per point. This is known as your '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 losses are based on the full value of the position. See our spread betting examples​ for more information.

What is a spread?

The difference between the buy price and sell price is referred to as the spread. 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. Say for example, GBP/USD's underlying price is trading at 1.37600 with a 1-pip spread, the buy (bid) price would be 1.37605 while the sell (offer) price would be 1.37595. Spreads can fluctuate depending on the price and volatility of an asset, as well as supply and demand. Learn more about the spread in trading​.

As one of the leading providers in the UK, we offer consistently competitive spreads. See our range of markets​ for more information about our spreads.

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 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.

As an example, our 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.

View our instrument spreads and margins

Indices

Instrument Min spread Margin rate
- - 5%
- - 5%
- - 5%
- - 5%
- - 5%

Forex

Instrument Min spread Margin rate
- - 5%
- - 3.34%
- - 3.34%
- - 3.34%
- - 3.34%

Commodities

Instrument Min spread Margin rate
- - 5%
- - 10%
- - 10%
- - 10%
- - 10%

Shares & ETFs

Instrument Min spread Margin rate
- - 20%
- - 20%
- - 20%
- - 20%
- - 20%

Bonds

Instrument Min spread Margin rate
- - 3.34%
- - 3.34%
- - 3.34%
- - 3.34%
- - 3.34%

Pricing is indicative. Past performance is not a reliable indicator of future results.

Spread betting trading benefits

Many investors choose this method when speculating on the financial markets as there are advantages of spread betting​ over buying physical assets:

  • 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

  • You can trade on indices, forex, commodities, global stocks, and treasuries

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

  • You get access to 24-hour markets

  • There is no stamp duty* to pay

Are there any risks?

  • The use of leverage can lead to loss of capital if your trade is unsuccessful, and even margin calls or account close-outs.

  • 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.


Before placing your trade, remember to make sure that you have followed risk-management guidelines​ as part of your strategy. Read more about the risks of spread betting​ before entering into a position.

Trade on over 11,500 instruments

Which 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 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 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. Here are two simple strategies that traders 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 markets move in the other direction, this would result in equal losses.

Shorting

This takes the opposite approach of a buy-and-hold strategy, where 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, 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.


Visit our article on spread betting tips and strategies​ for more information.

Tips to keep in mind when trading

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 new spread betting strategies on your demo account

Example of spread betting shares

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 Barratts' 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.

What are the spread charges when trading on shares?

Is spread betting taxable? The answer is no, you don’t pay tax on bets in the UK or Ireland*. This is also true for stamp duty, capital gains tax and commission charges. However, we build an additional spread cost into the share prices that are displayed on our platform. There are some differences depending on the country of the stock you are speculating on, which is applicable once your order has been submitted.

Country/market Additional spread
UK 0.10%
US 2 cents
Austria 0.10%
Belgium 0.10%
Canada 2 cents
Denmark 0.10%
Finland 0.10%
France 0.10%
Germany 0.10%
Hong Kong 0.25%
Ireland 0.10%
Italy 0.12%
Japan 0.10%
Netherlands 0.10%
Norway 0.10%
Portugal 0.10%
Singapore (SGD) 0.25%
Singapore (USD) 0.25%
Spain 0.10%
Sweden 0.10%
Switzerland 0.10%


Learn more about spread betting for beginners​ and how to get started. If you're ready to trade, open an account​ now.

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FAQs

How much do I need to start?

To get started, you will need to deposit enough capital into your account to cover the margin for the asset that you have chosen. We don't have a minimum deposit requirement, so you can pay in as little funds as you would like; however, these funds will likely need to be increased as you expand your trades. Read about our margin account requirements.

Can you make money financial 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.

How regulated is spread betting?

Spread betting providers are regulated by the Financial Conduct Authority (FCA) in the UK and it's compulsory for all UK 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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