Spread betting is an alternative to traditional trading. It enables you to bet on whether an asset is headed up or down in price, instead of buying the asset itself.
When you spread bet on the FTSE 100, for example, you are placing a bet on whether the FTSE 100 will go up or down in price. Your profit or loss is decided by the price of the FTSE 100 when you close your position.
Spread betting offers several benefits to traders:
- It is tax-free1
- It allows you to speculate on the movements of thousands of different markets, 24 hours a day
- You can trade when markets are falling as well as rising
When you place a spread bet, you’ll be presented with two prices:
- The buy price, which you trade at if you think the asset’s price is set to increase
- The sell price, which you trade at if you think the asset’s price is set to decrease
The difference between these two prices is what is known as the spread. The more your asset’s price moves in the direction of your trade, the greater the profit you’ll make. The more it moves against your trade, the greater your loss.
One of the biggest reasons why traders use spread betting is leverage. Leverage means that you don’t have to put up the full value of your position when you open your position. Instead, you just have to put up a deposit, known as margin.
Trading using leverage magnifies both the profit and loss from trades relative to your initial outlay, so carries with it substantial risks, including the risk that your losses could exceed your deposit.