# What is spread betting and how does it work?

Spread betting is a tax-free financial derivative that enables you to speculate on the price movement of a financial market,* without actually owning the underlying asset. Instead, you predict whether your market’s price will rise or fall, and the degree to which you are right or wrong determines your profit or loss.

Interested in spread betting with IG?

When financial spread betting, the outcome you're speculating on is the direction in which the price of a financial instrument – like a currency pair, company stock or even an entire index – will move.

If it moves the way you predict, your profit will grow the further it goes. However, if the market moves against you, your loss will also increase as the price movement becomes greater.

## How does spread betting work?

Financial spread betting works using three different components. The spread is the charge you pay to open your position, the bet size determines the size of your profit or loss, and the bet duration dictates how long your position will remain open before it expires. Here’s an introduction to all three:

Spread betting gets its name from the spread – or the two prices that are always wrapped around the underlying market price. The costs of any given trade are factored into these two prices (known as the offer and the bid), so you will always buy slightly higher than the market price, and sell slightly below it.

If the FTSE 100 is trading at 6545.5 and has a one point spread, for example, it would have an offer price of 6546 and a bid price of 6545.

### What is the bet size?

The bet size is the amount you bet per unit of movement of the underlying market. You can choose your bet size, as long as it meets the minimum we accept for that market. Your profit or loss is calculated as the difference between the opening price and the closing price of the market, multiplied by the value of your bet.

We measure the price movements of the underlying market in points. For UK equities, for example, one penny movement in the underlying market would equal one point. The movement of a whole index, however, is simply measured in points.

For example, if you open a £2/point bet on the FTSE 100 and it moves 60 points in your favour, your profit would be £2 x 60 points = £120. If it moved 60 points against you, you would lose £120.

### What is the bet duration?

The bet duration is the length of time before your position expires. All spread bets have a fixed timescale, expiring from within a day to several months away. You are, however, free to close them at any point before their designated expiry time, assuming the spread bet is open for trading.

Here are two examples of spread bet durations:

• Daily funded bets run for as long as you choose to keep them open. They offer our tightest available spreads, with a default expiry some way off in the future. We will make an adjustment to your balance to reflect the funding costs of your position for each day that the bet remains open. You would generally use a daily bet to speculate on short-term market movements.
• Quarterly bets are futures bets that expire at the end of a quarterly period. These bets have funding costs built into the spread. You can roll quarterly bets into the next quarter if you let us know in advance.

Say Apple is trading with a sell price of 135.05 and a buy price of 135.20. You anticipate that Apple shares are going to rise in the next few days due to a new product release tomorrow. You decide to go long on (buy) Apple shares for £10 per point of movement at 135.20. You choose to open a daily funded bet (DFB).

After three days, Apple shares have indeed moved in your favour and increased to 135.50/135.65. You decide it’s a good time to close your trade. This means you’ll be coming out with a profit of (13550 – 13520) x 10 = £300. But because you chose a DFB, you’ll also have had to pay daily funding charges.

On the other hand, if you originally decided to sell Apple for £10 per point at 135.05 and then closed at 135.65, you would have ended up with a loss of (13565 – 13505) x £10 = £600. Once again, excluding any daily funding charges.

## Open an account now

### Fast execution on a huge range of markets

Enjoy flexible access to more than 16,000 global markets, with reliable execution

### Fast execution on a huge range of markets

Enjoy flexible access to more than 16,000 global markets, with reliable execution

### Feel secure with a trusted provider

With 45 years of experience, we’re proud to offer a truly market-leading service

### Feel secure with a trusted provider

With 45 years of experience, we’re proud to offer a truly market-leading service

## You might be interested in...

• ### What is leverage?

Understand the benefits and risks associated with using leveraged products