Benefits of spread betting
Spread betting is a derivative product that offers traders a range of benefits over traditional investing. These include leveraging positions to make your capital go further, going long or short on thousands of markets and tax-free trading.* Learn more about these advantages of spread betting and many more.
Interested in spread betting with IG?
Advantages of spread betting
Spread betting appeals to a range of traders, both beginner and professional alike, because it enables them to:
- Make capital go further with leverage
- Go short or long
- Profit without paying tax or stamp duty*
- Trade a huge range of markets
- Hedge a share portfolio
- Access out-of-hours trading
- Trade without paying commission
Make capital go further with leverage
As a leveraged product, spread betting can help your money go further. This is because leverage enables you to open a position that is much larger than your initial deposit.
When you open a spread betting position, you will only be required to deposit a percentage of your total trade size, known as the margin. So, let’s say that you want to place a bet equivalent to £2000 of Apple shares. If Apple’s margin rate is 20%, then you would only have to put down £400.
As profits are calculated using the full size of your position, not just the margin, leveraged trading could magnify your profits. However, losses are calculated in the same way, meaning your risk is also magnified. This is why it is important to use leverage wisely, never trading more than you can afford to lose, and taking care to manage your risk.
|Spread bet||Share deal|
|Your Apple position rises to £2050||You make £50, or 12.5%||You make £50, or 2.5%|
|Your Apple position falls to £1950||You lose £50, or 12.5%||you lose £50, or 2.5%|
Go short or long
With spread betting, you can benefit from markets that are declining in price, as well as those that are increasing. This is because you are betting on the direction in which an asset’s price will move, rather than buying the asset itself.
So, if you believe a market is going to rise in price, you would open a ‘long’ position, and if you believe a market is going to fall in price, you would ‘go short’.
Discover the differences between spread betting and share dealing.
For example, if you wanted to open a short position on the FTSE 100, you would trade at the ‘sell’ price instead of the ‘buy’ price on your dealing platform. A short spread bet for £5 per point of movement would mean that for every point the FTSE moves downwards you’ll earn £5. But for every point that the FTSE moves up, you’ll lose £5.
Discover how to spread bet and see more examples.
Profit without paying tax or stamp duty
When you buy and sell shares, you have to pay capital gains tax on any profits that you make. But when you spread bet, any profits are yours to keep because they are exempt from capital gains tax. And since you never actually own the underlying asset, you won’t have to pay stamp duty either.*
Trade a huge range of markets
Spread betting gives you access to a huge range of markets. With IG, for example, you can trade over 16,000 markets including shares, forex, indices, commodities, cryptocurrencies and more – all via a single login.
Hedge a share portfolio
You can hedge your share portfolio using a spread bet by speculating on an asset that tends to move in a different direction to the shares that you own.
For example, if you owned shares in an oil producing company but rising oil prices were causing the company’s share price to suffer, you could open a long position on oil to hedge your risk. This would mean that any loss to one position would be offset by profit to the other. Hedging can be a great way to offset risk, or at least limit losses to a known amount.
Access out-of-hours trading
Trading hours will vary by market. For example, while shares and commodities trade when their underlying exchange is open, forex and cryptocurrencies can be traded 24 hours a day. When you spread bet, you can do so during regular trading hours, but some spread betting providers also allow you trade certain markets outside of hours.
With IG, for instance, you can trade key indices around the clock, and you can even spread bet on the FTSE 100, Wall Street and Germany 30 over the weekend – alongside all of our cryptocurrency markets. We also offer ‘all sessions’ trading on key shares, so that you can trade both pre and post-market sessions, as well as within normal trading hours.
It is important to keep in mind, though, that a market’s opening price may differ from its out-of-hours price.
Trade without paying commission
You don’t have to pay commission when spread betting, as the cost of opening your position is covered in the spread – the difference between the buy and sell prices you’ll see listed on your spread betting platform. However, there could be other charges to pay once your position is open, such as overnight funding charges.
With IG, you can access competitively low spreads across a wide range of markets. Discover our costs and charges.
Develop your spread betting knowledge with IG
Find out more about spread betting and test yourself with IG Academy’s range of online courses.
* Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.