Spread Betting explained
Spread betting: What is it? Spread betting is a type of speculation where you place a bet on the direction that a financial instrument will move. Your profit or loss will depend on whether the market moves in your favor.
Spread betting is different from other types of trading in that the spreadbettor does not own the product. They speculate about whether the price will rise or fall. Spread betting is a leveraged product so spreadbetters can trade on margin. To open a position, you will only need to deposit a small amount of the total trade value.
Let’s look at how a spread betting trade works.
Spread betting: How does it work?
Spread betting is a complex concept that requires you to be familiar with the various components. Spread betting trades are made up of three components:
- Trade direction
- Spread of the instrument
- The trade size
Spread betting brokers trading tickets give you the opportunity to buy or sell a financial instrument. You would open a long trade if you think the market will rise in value. You would open a short trade if you think the market will fall in value.
spread betting trading tickets will show you the price you can purchase at and the price you can sell. The spread is the difference between these two values. This is the cost or commission of your trade.
Spread betting trading tickets require a specific bet size or’stake’ size. Because the bet size determines your profit or loss, it is crucial. Let’s take a look at spread betting trading to see how it works.
How to Spread Betting Stock Market Indices
This example will show spread betting stock market indices. We will use a long trade using the FTSE 100 stock index as an illustration. Let’s say that the underlying price of the FTSE 100 index stock market is 6500. You can buy and sell at 6501 with a spread of two points applied by brokers. The stock index is undervalued, and you believe it will rise. Spread betting on the stock market index allows you to buy or sell a long position (or trade) for PS5 per point at 6501.
- Scenario 1: A Winning Trade
When you close your position, the FTSE 100 index will rise to 6595. Your broker now quotes a buy price at 6596 and a sale price of 6594, a two-point spread. Spread betting trades must be closed by the opposite and equal trades. This means that you can sell your PS5 per-point position for 6594.
The difference between your entry price and exit price is 93 points (65941 – 6511). Spread betting accounts have a simple formula: multiply your bet size with the number of points gained to calculate your profit. This example shows that a PS5 per point multiplied with 93 points profit equals a total monetary gain of PS465. - Scenario 2: A Losing Trade
If the FTSE 100 index falls to 6400 instead of rising, you can decide to reduce your loss and exit the trade. Your broker now quotes a buy price at 6401 and a sale price of 6399, a two-point spread. Spread betting trades must be closed by the opposite and equal trades. This means that you can sell your PS5 per-point position for a price of 63999.
The difference between your entry price and exit price is -102 (6399 – 6501). Spread betting accounts have a loss calculator that allows you to multiply the size of your bet by the amount of points you have lost. This example shows that a loss of PS510 is equal to PS5 per point multiplied with a loss of 102 points.
Both scenarios will result in additional funding fees if the position is kept open overnight. Spreads can vary depending on the financial instrument and time of the day.
Spread betting forex is a way to trade other markets in your spread betting account.
Spread Betting Forex: What is it?
We will be using a short trade on GBPUSD to illustrate spread betting forex. Let’s say that the GBP/USD underlying market price is 1.5000. Each market in a spread betting account will be listed in points. Your broker’s GBP/USD price is 1.5000. A broker can apply a two-point spread to your trades (for example, you could sell at 1.4999 or buy at 1.5001). If you believe that the currency will fall, then you can place a sell order or short trade for PS3 per point at 1.49999.
- Scenario 1: A Winning Trade
The GBP/USD falls to 1.4950 at which point you can decide to close your position. Your broker now quotes a buy price at 1.4951 and sell price at 1.4949 (a 2-point spread). Spread betting trades must be closed by exiting on the opposite side. You initially sold GBP/USD at PS3 points, which means that you can now buy GBP/USD for PS3 points at 1.4951 etoro crypto.
48 points is the difference between your entry price and exit price. Spread betting accounts have a profit calculation. Simply multiply the size of your bet by the number points you have won to calculate your profit. This example shows that a profit of PS144 is achieved by multiplying PS3 per point by 48 points profit. - Scenario 2: A Losing Trade
The GBP/USD exchange rate rises to 1.5050. You decide to close your position. Your broker now quotes a buy price at 1.5051 and sell price at 1.5049 (a two point spread). Spread betting trades must be canceled if you do not wish to exit. You initially sold GBP/USD at PS3 points, so you can now buy GBP/USD for PS3 points at 1.5051.
The difference between your entry price and exit price is -52 Points (1.5051-1.9991). Spread betting accounts have a loss calculator that allows you to multiply the size of your bet by the amount you have lost. This example shows that a loss of 52 points equals PS3 per point, which is equivalent to a loss totaling PS156.
In either case, additional funding fees would apply if the position is kept open overnight. Spreads can also vary depending on the financial instrument and time of the day.
Spread betting forex has been explained. Now let’s learn more about indices and spread betting forex. Let’s also answer the hypothetical question: Can you spread bet for a living? Is spread betting profitable?
The Ultimate Guide to Spread Betting UK
Spread betting is one type of trading instrument among many, such as CFD trading and options trading. Spread betting is a type of trading that you should be aware of in order to make an informed decision about whether or not you want to open a spread betting account.
Choose the Best Spread Betting Platform
It is important to keep in mind that spread betting platforms vary greatly between spread betting companies.
For new traders, this can be a challenge. You want to learn about the markets, not try to figure out how to use each platform.
However, there are key points you need to look out for when looking for the best spread betting platform.
- Is the spread betting platform provider regulated? A FCA approved spread betting provider is one the most stringent regulations that can be found from the UK’s financial regulator, the Financial Conduct Authority.
- Are they able to allow spread betting demo accounts? Some providers allow you to start with a spread betting demo account, but not all. You should check the expiration date as some providers only offer them for a few days. You may be limited in which markets you can access with the spread betting demo account.
- Are they able to access other trading platforms? Access to other financial trading platforms may prove useful as you grow as a trader. A serious forex trader might want to have access to the interbank FX markets through an ECN account. This allows them to trade directly against their broker and not with other banks. A CFD trading account may be desirable by an investor for its hedging capabilities.
Spread betting is a lucrative business and it is important to have the right tools to trade. These traders are often asked the following questions: Is spread betting taxable? And, is spread betting profitable? We will answer these questions in the next section.
Spread betting is taxable
Spread betting UK residents have the advantage of profiting from spread betting without paying tax. Tax treatment is dependent on each individual’s circumstances, and tax laws can change.
Spread betting accounts in the UK are exempted from stamp duty and capital gains taxes (CGT) within UK. Spread betting profits are exempted from CGT. This means that losses cannot be offset for tax purposes (unlike CFD trading account).
*Tax laws can change depending on individual circumstances. A jurisdiction’s tax law might be different from the UK.
Spread betting is profitable?
Spread betting is profitable for some traders, while others will not. It all depends on each individual. There are some practices traders can consider when trying to achieve profitability. These are:
- A trading plan is essential – There are over 3,000 markets available to trade. However, it is important that you have a clear focus. You will be focusing on stocks, indices and commodities or a combination. You should master a few things, not just scratch the surface of many.
- You can test your trading strategy. There are many trading styles, indicators, and strategies available. It is crucial to be able to test them in a safe environment to build confidence and long-term trading success. It doesn’t matter if you have a spread betting demo account, or a CFD demo trading accounts, it is vital to get started.
Spread betting demo trading accounts are available for those who prefer to trade directly from the charting platform. This allows you to test your strategy and improve your skills.
Conclusion
Spread betting is a form speculation. A trader who believes that the market is moving higher would take a buy or long position. A trader who believes that the market is moving lower would take a sell or short position. Spread betting accounts have a profit or loss depending on how much the market moves in your favor or against you. To calculate a monetary profit, multiply this amount by the trader’s bet size (for instance PS5 per point).
Spread betting UK accounts are exempted from capital gains and stamp duty. Tax treatment is dependent on the individual and laws can change. You cannot offset any losses for tax purposes in a spread betting UK account, unlike a CFD (Contracts for Difference) trading account.Profitability is more dependent on the individual, rather than the trading vehicle. Demo trading accounts can be a great way to start testing your trading strategies and ideas in a risk-free setting.