Spread Betting Guide

Spread Betting Guide

Spread Betting Guide

Spread betting guides
from Tradefair.

The great news is that spread betting is tax free* making it a cost-effective alternative to traditional share trading, although UK tax laws may change in the future.

Spread betting allows you to speculate on the movement of shares, indices, forex and commodities without using a stockbroker, so you don’t usually have to pay commissions or broker’s fees.

The way it works is that a spread betting company makes a spread around the live, underlying market price and you can bet on whether this market will rise or fall. More good news: spread trading on the movement of financial markets gives the opportunity to generate profits on both rising and falling markets. So you get all the benefits of speculating on the markets and because it’s a geared product you can trade for a fraction of the cost, increasing your potential ROI.

Now, to get the not-so-good news over with. It’s important to remember that substantial rewards can also mean substantial risks. With spread betting, you could actually lose more than your initial capital deposit or stake.

Trades can and will turn against you sometimes so it’s important to speculate only with money that you can comfortably afford to lose. And it’s OK to lose trades; in fact, professional traders do expect to lose trades some of the time. What makes the difference is that they hope and expect their wins to exceed their losses in monetary terms. Please make sure you’re aware of the risks and, if you’re in any doubt, consult a qualified financial advisor. Once you understand the risks involved, please make sure spread betting fits your investment objectives.

Enough of that, let’s get on with showing you how it all works.

Spread Betting Guide - Anatomy of a Spread Bet

The ‘spread’ in the phrase ‘financial spread betting’ refers to the difference between the Sell (Bid) and Buy (Offer) price quoted by the spread betting company. This price is calculated around the live, or the estimated future, market price of a financial instrument such as a financial index like the FTSE, a commodity like gold, or the share price of a company such as BP plc, for example.

When you spread bet, you don’t buy the share. You don’t own anything. Instead you simply bet on which way you think the market or the share price will move, either up or down.

It’s not rocket science. With Tradefair, the minimum bet, or stake, is currently £1.00 per point.

How much you make or lose depends on the difference between the opening and closing price multiplied by your stake.

Time for a quick couple of examples / spread betting guides to illustrate the concept.

A Winning Trade:

The ‘buy’ price of BP plc is 450.0p
For a FTSE 100 share you trade in £x per penny of the share price movement
You think the price is going to go up so you click ‘buy’, at 450.0p for £10 per penny
The price does go up to 455.5p
You then click ‘sell’ to take the profit and you win £55 (£10 per penny x 5.5p = £55)

A Losing Trade (because, of course, a trade can go the other way):

The ‘buy’ price of BP plc is 450.0p
You think the price is going to go up so you click ‘buy’, at 450.0p for £10 per penny
The price falls to 446.0p
£10 per penny x -4.0p = -£40
You then click ‘sell’ because a £40 loss is all you’re prepared to take and you don’t think the market will recover soon enough to suit your strategy

You need to be aware that your losses can increase dramatically if the markets move against you rapidly. Spread betting companies want you to enjoy your spread betting and profit from it. So again, please be aware of the risks as well as the potential for profit.

Spread Betting Guide - Features and Benefits

Most spread betting platforms are designed to make it as easy as possible to trade. What’s more, spread betting can be a remarkably cost-effective way to trade the markets. Some of the reasons for this are:

The profits you make are tax free*. Trade without:
- Income tax
- Capital gains tax
- Stamp duty
There’s no stockbroker’s commission
It’s leveraged so you can trade an underlying market for a fraction of the cost (compared to share dealing)

One thing to note is that UK tax laws may change in the future and outside the UK tax law may be different.

Spread Betting Guide

Spread betting guides – below is a list daily trading articles looking at the spread betting markets.

Daily Spread Betting Guides

» Brokers Tips

» Market Commentary

» Financial Trading Review

» Technical Analysis

» Commodities Analysis

» Mid-Morning Trading Update

» Financial Market Data

» Closing Market Commentary

Spread Betting Guide: Spread Betting vs. Share Dealing

While there are some distinct similarities between traditional share dealing and spread betting, there are also some big differences as well. This spread betting guide looks at what differences there are in terms of cost and risk.

Spread Betting Guide: Gearing/Leveraging

Even a small price change can add up to big profits (or losses) with spread betting. Most spread betting companies will let you have a bet worth, say, £1000 with just £100 in your account. This is called ‘gearing’ or ‘leverage’. Here’s an example:

If you buy 500 shares in Schroders at 860p, your total exposure (or investment) is £4,300. The equivalent in a spread bet is £5 per point at 860, with the same total exposure of £4,300. However, with a spread bet, you don’t need £4,300 in your spread betting account to open the position, you only need a small percentage (3% for a FTSE100 share).

In this example it would be £129 (3% x £4,300), known as the initial margin required (IMR). With only £129 of margin required to open a trade worth £4,300 this means that you have freed up £4,171 of capital to put to use elsewhere should you wish.

The table below illustrates how a share investment held for 30 days with Tradefair might compare to a spread bet.

Spread Betting Guide: Spread Betting vs. Share Dealing Comparison

If you wanted to, you could try running a share-dealing account and a spread betting account in tandem. There’s no better way to see how cost-efficient spread betting can be compared to dealing directly in equities.

As well as letting you speculate on individual shares, spread betting also lets you trade:

Whole stock market indices, like the FTSE 100 (London), DAX (Frankfurt) or S&P (New York)
Commodities, such as oil and gold
Foreign exchange, such as the pound / euro and dollar / yen currency pairs

You can trade all of these things and more from a single spread betting account.

Some spread betting companies also allow you to trade in a selection of currencies; most typically you can trade in sterling, euros or dollars.

Whether you’re betting on the relative value of the pound against the dollar or American government bonds, your profits will always be in the currency you have chosen so you’ll always know where you are financially.

Tradefair Account / Website

Go to » Tradefair Website

Go to » Apply for a Tradefair Account

Daily Spread Betting Blog, updated 17-May-13
London's FTSE is trading flat at 6688 and the spread betting markets are faced with something of a dilemma. The fact that sentiment sours on the basis of hawkish rhetoric from some US Fed members demonstrates...read article: Daily Spread Betting Blog.

Financial Spread Betting Video: Can Stock Markets Keep Hitting New Highs Despite Mixed Economic Data?, updated 19-May-13
Financial spread betting video considering stock market indices hitting all-time highs despite mixed economic data, moves in the Australian dollar after the RBA rate cut and...read article: Financial Spread Betting Video: Can Stock Markets Keep Hitting New Highs Despite Mixed Economic Data?.

Morning Market Video, updated 29-Apr-13
The Morning Market Video - a quick look at what's happening in the stock markets today, with the latest trading news, price updates and major market moving events as well as...read article: Morning Market Video.

Weekly Technical Analysis Video, updated 23-Apr-13
Financial spread betting analysis video discussing the gold market's recent plunge as well as the technical outlook for USD/JPY, GBP/USD and...read article: Weekly Technical Analysis Video.

FX Analysis Video: Surprise RBA Rate Cut Sees AUD/USD Break Lower, updated 15-May-13
FX analysis video discussing the technical outlook for GBP/USD, AUD/USD and GBP/AUD in the light of UK inflation expectations and a surprise rate cut by the Reserve Bank of...read article: FX Analysis Video: Surprise RBA Rate Cut Sees AUD/USD Break Lower.

Spread Betting Prices, updated 17-May-13
Live spread betting prices for the most popular markets and quick access to live charts. Plus, which spread betting companies offer live prices, how to use spread betting prices, 24 hour prices, how to...read article: Spread Betting Prices.

Spread Betting Guide, updated 13-May-13
Spread Betting Guide: What is spread betting, how to spread bet, spread betting advantages, spread betting examples and...read article: Spread Betting Guide.

Spread Betting Guide to Making a Trade, updated 13-May-13
Spread Betting Guide to Making a Trade: A step-by-step guide on how to place a spread bet including a fully worked example and...read article: Spread Betting Guide to Making a Trade.

Stock Market Opening and Closing Times, updated 13-May-13
Stock Market Opening and Closing Times: a look at when the leading European, US and Asian stock markets open and close. Plus, where to get stock market index trading analysis, news and...read article: Stock Market Opening and Closing Times.

Spread Betting v Share Trading, updated 13-May-13
Some people see spread betting and standard trading as two different sides of the same coin. Whilst the pair do share similarities, it is fair to say that...read article: Spread Betting v Share Trading.

Sectors Spread Betting, updated 13-May-13
Sectors spread betting is a convenient way of taking a position on an entire industry by giving investors exposure to a basket of underlying stocks in a particular sector. Sectors are groups of firms that all...read article: Sectors Spread Betting.

Trailing Stop Orders, updated 13-May-13
A trailing stop loss isn't static, it keeps a stop loss at a specific percentage/point below or above the market. Trailing stop orders can help spread betting investors lock in their potential profits when they...read article: Trailing Stop Orders.

Chinese Renminbi Trading: Spread Betting on the Yuan, updated 13-May-13
Chinese renminbi trading guide with a look at where to trade USD/CNH and CNH/JPY as well as market movements, market reports, market background and...read article: Chinese Renminbi Trading: Spread Betting on the Yuan.

Differential Spread Betting, updated 08-May-13
Differential Spread Betting - the complete guide to differential spread betting, where to trade differentials, what is differential spread betting, how to spread bet on FTSE vs Dow and...read article: Differential Spread Betting.

FTSE / Dow Jones Differential, updated 08-May-13
FTSE Dow Jones Differential - a guide to FTSE Dow Jones differential spread betting including where to spread bet on differentials, what are differential spread betting markets, how to trade on the FTSE 100 vs Dow Jones and...read article: FTSE / Dow Jones Differential.

FTSE / DAX Differential, updated 08-May-13
FTSE DAX Differential - the complete guide of FTSE DAX differential spread betting, where to trade index differentials, what are differential markets, how to spread bet on the FTSE 100 vs the DAX 30 and...read article: FTSE / DAX Differential.

Crude Oil Differential, updated 08-May-13
Crude Oil Differential - a comprehensive guide to crude oil differential spread betting, where to trade differential spread betting markets, what is a differential market, how to spread bet on Brent Crude Oil vs US Crude Oil and...read article: Crude Oil Differential.

Spread Betting on House Prices, updated 15-May-13
The complete guide to spread getting on house prices: where to spread bet on the housing market, where to get live charts and prices, how to spread bet on house prices and...read article: Spread Betting on House Prices.

Spread Betting on Bitcoin, updated 15-May-13
Guide to Bitcoin trading with live charts and prices, plus where to spread bet on Bitcoin, where to trade Bitcoin CFDs and Bitcoin binary bets as well as...read article: Spread Betting on Bitcoin.

EUR/USD Spread Betting Market Plummets on Cypriot Bailout Tax Plans, updated 18-Mar-13
The EUR/USD spread betting market has plummeted following a surprise announcement from Cyprus. The fact that an indiscriminate tax is being applied to all Cypriot depositors has...read article: EUR/USD Spread Betting Market Plummets on Cypriot Bailout Tax Plans.

Mervyn King Boosts GBP/USD Spread Betting Market Despite Prospect of Negative Rates, updated 15-Mar-13
The GBP/USD spread betting market received a boost from Sir Mervyn King as he mentioned that the pound had reached a fair value following months of declines. The UK currency dragged itself...read article: Mervyn King Boosts GBP/USD Spread Betting Market Despite Prospect of Negative Rates.

UK Credit Rating Downgrade Sees Sterling/Dollar Spread Betting Market Tumble, updated 25-Feb-13
The UK Chancellor got his first official slap on the wrist in the form of a downgrade from credit ratings agency Moody's. Sterling naturally tumbled over the weekend, however, the currency has not fallen by as much as...read article: UK Credit Rating Downgrade Sees Sterling/Dollar Spread Betting Market Tumble.

FTSE Spread Betting Market Bounces After Spanish Corruption Allegations Cause Tumble, updated 05-Feb-13
Eurozone worries sent shivers down investors' spines yesterday as the sellers cascaded into the FTSE spread betting market. Spain saw calls for the resignation of PM Mariano Rajoy over alleged...read article: FTSE Spread Betting Market Bounces After Spanish Corruption Allegations Cause Tumble.

UK Retail Shares Spread Betting: Burberry Surges Despite HMV Entering Administration, updated 15-Jan-13
The high street woe continues as HMV becomes the latest retail casualty. In contrast, this morning's bright spot for UK shares is the turnaround in Burberry. Only a few months ago...read article: UK Retail Shares Spread Betting: Burberry Surges Despite HMV Entering Administration.

FTSE Spread Betting: US Fiscal Cliff Deal Inspires Buying Frenzy, updated 02-Jan-13
At the last minute, US politicians managed to carve out a deal to avoid the fiscal cliff and the FTSE spread betting market has jumped. The buyers have the wind in their sails and there's a bit of a buying frenzy...read article: FTSE Spread Betting: US Fiscal Cliff Deal Inspires Buying Frenzy.

Financial Spread Betting Features 2012, updated 31-Dec-12
An index of spread trading features from 2012 which cover the largest moves in shares, stock market indices, forex and commodities. The articles are a high quality mix of financial commentary, analysis, trading news and...read article: Financial Spread Betting Features 2012.

Financial Spread Betting Features 2011, updated 31-Dec-11
An index of financial spread betting articles from 2011 discussing the market moving events in forex, commodities and stock market trading. The features include commentary and analysis and on...read article: Financial Spread Betting Features 2011.

Financial Spread Betting Features 2010, updated 31-Dec-10
An index of articles from 2010 with trading analysis and market commentary on the largest moves in stocks, currencies, gold and crude oil. The features also discuss...read article: Financial Spread Betting Features 2010.

Financial Spread Betting Features 2009, updated 31-Dec-09
A range of trading articles from 2009 with commentary and analysis on the major forex markets, stock markets and commodities markets. These financial spread betting features cover...read article: Financial Spread Betting Features 2009.

Financial Spread Betting Features 2008, updated 31-Dec-08
An index of financial articles from 2008 including analysis and commentary on the major moves across the stock markets, forex and commodities. These financial spread betting features cover topics such as...read article: Financial Spread Betting Features 2008.

Spread Betting Strategies, updated 17-May-13
A range of features from industry professionals discussing various market opportunities, financial outlooks, sector trading, spread betting growth areas and...read article: Spread Betting Strategies.

Blog, updated 17-May-13
The CleanFinancial.com spread betting blog with a daily range of news, views, offers, tips and strategies. The spread betting blog covers the forex markets, stock market indices, commodities and...read article: Blog.

Interesting Quotes and Live Financial Quotes, updated 17-May-13
Interesting Quotes and Live Financial Quotes: quote of the day and the last 5 political quotes, funny quotes and topical quotes. Plus where to get free financial real time prices and quotes...read article: Interesting Quotes and Live Financial Quotes.

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Risk Warning: Spread betting and CFD trading carry a high level of risk to your capital and you may lose more than your initial investment. Spread betting and CFD trading may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The contents on CleanFinancial.com are for information purposes only and are not intended as a recommendation to trade. Nothing on this website should be construed as investment advice.

Neither CleanFinancial.com nor any contributing company/author accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

* Tax law is subject to change or may differ if you pay tax in a jurisdiction other than the UK.

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