The basics of spread betting
Financial spread betting allows you to speculate on the movement of amongst other things a share price, the FTSE, a particular currency, a commodity or even a house price index. You are not actually purchasing the shares or commodities you invest in just betting on which way the price will move.
It allows you to make very large gains from using very small amounts of money. Conversely, you may also lose a large amount of money. Although you can limit the maximum sum you can lose by setting stop losses.
Very simply if (for example) the price of gold is at $850 and you believe that due to a stock market crash, investors will buy more gold and the price of gold will rise to $900, you place a £1 a point bet to “buy” Gold. Now the reason it’s called spread betting is that the spread betting company makes it money from the “spread”. So let's say Gold is priced at officially priced at $850 and there is a 2 point spread. That means you will actually buy it at $851 or if you thought the price was going to go down you wanted to sell it you would “sell” it at $849. The instant you place your bet therefore you will be £1 down and the price of Gold will have to exceed $851 before you are in profit. In essence you are being charged £1 to place the bet. Likewise when you come to sell your position you also need to take the spread into account.
Despite being charged simply to place a bet there are several major advantages to spread betting over traditional share trading:-
- The power of leverage. If a share is priced at £10 you would need to pay £1000 to buy 100 shares. Assuming the share price rose to £11, you would net a profit of £100. Had you instead bet £10 a point on the movement of the share price using a spread betting company and seen it rise to £11 (a 100 point move) you would have made £1000.
- Your winnings are 100% tax free if you are a UK resident
- You can bet on the share price moving up or down, which means you can make money whatever the market is doing.
- You can limit your losses to an acceptable level using a stop loss.
- Low trading costs and no commission payable.
There are many spread betting companies available but we recommend Capital Spreads as they
- Offer training programmes and seminars teaching you how to spread bet effectively
- They have very low spreads giving you maximum chance for profit.
- They have some of the lowest margin requirements in the industry.
- You can spread bet from just £1 a point
- You can get started with an initial deposit of just £30
All in all we believe they offer the best package for the novice spread better.
For a free beginners guide to spread betting, a free seminar place or to find out about opening an account, please click on the banner below. You will be taken to an intermediary Capital Spreads page and will need to click on the big blue button in the centre of the page that says: "For Better Value Spread Betting..." to then connect to the site for your free download or seminar registration.
Please note: Spread bets carry a high level of risk so you should only speculate with money you can afford to lose. You can lose more than your initial deposit and stake. Before you open an account, please ensure you familiarise yourself with the risks involved.
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