Why buy shares when you can spread bet?

Spread betting can be is an effective, tax-efficient way to trade on price movements in the stock markets. As it is a derivative product, you do not take ownership of the underlying asset. This also means you have the option to go long or short, taking a position based on whether you think market prices will rise or fall. Spread betting can be considered as an alternative to traditional share dealing, or can be used to compliment a wider investment strategy.

Why spread betting is popular with investors

Spread betting offers a number of benefits, particularly if you want to trade on high-growth stocks over the short term:

Tax-free profits: You don’t pay capital gains tax on any profits made from share spread bets.
No stamp duty: There is no stamp duty to pay as you aren’t taking ownership of the stock. Please note, tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
Trade with leverage: Make your capital go furtherYou can open a position by by depositing a percentage of the full value of your position to open a trade. Profits and losses will be based on the full value of the position.
Profit from falling markets: As you’re able to open a long or short position, you can take advantage of both rising and falling stock prices.
No commissions: Pay no commissions when you place a buy or sell trade.
Short-term opportunities: Place quick and cost-effective trades on trending stocks.

Try spread betting with a demo account >>

Spread betting vs. Share dealing

Spread betting	Share dealing
Tax-free profits	Pay tax on profits
Trade on leverage and deposit a percentage of the full value of the trade. Profits and losses are based on the full value of your position	Buy shares outright and put up the full value of the trade
Go long or short with the ability to profit on stocks which rise or fall in value	The ability to profit on stocks which rise in value
No commissions	Subject to commissions
Trade on a huge range of financial markets	Trade stocks and shaers only
Suited to shorter-term investment strategies	Suited to long-term investment strategies

*Please note, tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Trade examples

Buy £10,000 worth of Barclays shares at 158p and hold for 1 month.

	Spread bet	Share deal
Trade value	£10,000	£10,000
Stake*	£63.29/point	6,329 shares
Initial outlay*	£2,000	£10,000
Opening share price	158p	158p
Trade duration	30 days	30 days
Closing share price	171p	171p
Profit	£822.78	£822.78
Stamp duty*	£0	£50
Commission*	£0	£23.90
Typical spread costs*	£20	£0
Overnight holding cost*	£26.50	£0.02
Tax on profit*	£0	£164.56
Total cost	£46.50	£238.48
Total profit	£776.28	£584.31

Losing trade example

	Spread bet	Share deal
Trade value	£10,000	£10,000
Stake*	£63.29/point	6,329 shares
Initial outlay*	£2,000	£10,000
Opening share price	158p	158p
Trade duration	30 days	30 days
Closing share price	153p	153p
Loss	-£316.45	-£316.45
Stamp duty*	£0	£50
Commission*	£0	£23.90
Typical spread costs*	£20	£0
Overnight holding cost*	£26.50	£0.02
Tax on profit*	£0	£0
Total cost	£46.50	£73.92
Total loss	-£362.95	-£390.37

Practice spread betting now >>

How spread betting may fit into your investment strategy

Hedge your existing shares portfolio: If you have built up a portfolio of stocks which you want to hold for the long term, a short spread betting position can be a good way to offset slides in the market.
Short-term opportunities: Spread betting can be a quick, cost-effective way to trade on trending growth stocks.
Make your own decisions: If you are looking for more independent control over your investment decisions, spread betting with an execution-only provider could be a good option.
Looking to diversify: If you’re interested in diversifying your investment strategy, spread betting allows you to trade on shares as well as a range of other financial markets.

What markets can you spread bet?

Shares & ETFs: Take a position on thousands of global shares and ETFs. You can trade on popular shares like Apple, Netflix and Lloyds, as well as trending growth stocks.
Forex pairs: You can trade on a range of major, minor or emerging currency pairs, including EUR/USD, GBP/USD, GBP/JPY and USD/HKD.
Indices: Get exposure to groups of shares and trade on the price movements of popular indices such as the UK 100, or sector-specific indices such as the FANG Plus index.
Cryptocurrencies: Trade on the price of cryptocurrencies against the US dollar. Popular cryptocurrencies include bitcoin, ethereum and bitcoin cash, while other altcoins include dash, NEO and stellar.
Commodities: Take a position on the most popularly-traded commodity sectors, like energies (oil and natural gas), metals (gold, silver and copper) and soft commodities (cocoa, coffee and sugar).
Treasuries: Get exposure to government gilts, bonds, bunds and treasury notes, such as the Eurodollar and US T-Bond.

Is spread betting for me?

Spread betting has a number of potentially attractive benefits when compared with traditional share dealing, with the main one being that any profit you make is tax-free, while there’s also no stamp duty owed, and no commissions to pay. There are some costs you face when spread betting versus share dealing, however, namely the spread cost itself and overnight holding costs. When comparing all of the cost-related elements though, it’s clear that spread betting can be moreis cost-effective versus share dealing.

Aside from the relative costs, spread betting also offers other key differentials – the ability to trade on falling as well as rising prices, to use leverage (which can amplify both profits and losses), and to diversify into other markets, like FX, commodities and cryptocurrencies. Share dealing is arguably the safer, more conventional route to trading shares, whereas in terms of costs, flexibility and as a shorter-term option, spread betting offers a viable alternative.

Ready to spread bet? Create an account >>

The examples are for illustrative purposes only.

*With spread betting, you buy or sell an amount per point movement. This is known as your stake. 5:1 leverage is available when spread betting on Barclays with CMC, so your initial outlay is 20% of the full trade value. Stamp duty would be 0.5% of the total trade value (£10,000) with traditional share dealing. Commission is based on the £11.95 fee to buy or sell shares with Hargreaves Lansdown; this fee may be subject to change and may vary depending on the provider. We charge an additional spread of 0.1%, which is built into the buy/sell prices on our spread betting platform. Holding costs are 3.23% a year of the total trade value. The amount shown is the holding cost for this spread bet for 30 days. Capital gains tax is 20% for higher rate taxpayers. Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Disclaimer Past performance is not a reliable indicator of future results.

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.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

Includes free newsletter updates, unsubscribe anytime. Privacy policy