Spread Betting is a flexible and tax-free* way to trade financial instruments including Forex, Shares, Spot Indices, Spot Metals and Spot Energies. Spread Betting is a form of derivatives trading, which means you aren’t taking ownership of the underlying asset. You open a position based on whether you think the value of an instrument will rise or fall. If the asset price moves in your favour, you profit, if it goes against you, you incur a loss.
As a leveraged financial product, Spread Betting has the potential to be profitable albeit involving a certain amount of risk. As such, Spread Betting may be more suitable for active traders that are:
Tax laws are subject to change and depend on individual circumstances.
Unlike other forms of online trading, Spread Betting doesn’t involve trading lots of currency or a number of shares. Instead, you buy or sell a certain amount of the instrument you are trading. This is referred to as your stake. Your profit or loss is then determined by multiplying your stake by the number of points the market moves.
When Spread Betting, if you think the asset price will rise, you place a buy order (or go long). If you think the price will fall, you place a sell order (or go short). The spread is the difference between the buy and the sell price.
A typical Spread Bet works as follows:
The currency pair EUR/USD is trading at a buy price of 1.11095 and a sell price of 1.11085. You believe that the value of the euro will rise against that of the dollar, so you decide to go long on EUR/USD and set a stake of £5 per point movement at 1.11095.
The market proceeds to move in your favour and the sell price of EUR/USD rises to 1.11165, so you decide to close your trade. Your profit would be calculated as follows:
Shares in IBM are trading at a sell price of 150.30 and a buy price of 150.68. You anticipate that the value of the shares will decrease, so you decide to go short and set a stake of £2 per point movement at 150.30.
On this occasion, the market moves against you and the buy price for IBM shares rises to 151.08, so you close your trade. In this situation, your loss would be calculated as follows: