Spread betting has become very popular over the past decade. The UK has the highest adoption of spread betting and Spread betting in Ireland is also popular. So what is Spread betting? How does it compare to normal trading?

Well, for a start, you don’t actually buy and hold a position in an underlying asset. You are trading in the direction of the said asset.

So essentially traders are making money off very short term price movements in financial markets, or sports or gambling markets as the case may be.

Origins Of Spread Betting

Although versions of spread betting existed as early as the 1900s, it wasn’t until 1974 that a man named Stuart Wheeler popularised it in the United Kingdom.

Given speculating on gold was illegal at the time, Wheeler had the idea to trade on the price of gold as an index. Borrowing £5,000 to establish the Investors’ Gold Index (later IG Index), he was the first to offer spread betting on gold prices. A year later, gold had gone from $100 to over $800 due to spread betting.

In 1983 City Index was founded, the world’s first financial spread betting specialist.

Since then, spread betting has taken off, particularly in the last 15 years.

Spread Betting for Beginners

It is simple to start trading if you are a beginner to the world of spread betting.

The first step is to familiarise yourself with how spread betting works. Fortunately, there is a wealth of educational material on the web and most brokers will also have spread betting courses on their website.

The next step is to decide what type of spread betting you wish to do and then find a suitable broker or spread betting platform. When choosing, not only do you need to check the betting instruments the brokers offer but their costs and what trading platforms they offer.

Most brokers will allow you to sign up with a demo account, this has two benefits. Firstly it allows you to test the trading platform to ensure it is to your liking. MetaTrader 4 is a common option. And secondly, a demo account is useful for practising. Spread betting is a form of gambling so it is important to know what you are doing before you real money.

Since you are new to trading, you may wish to look at spread betting platforms for beginners. The platforms will usually have easy signup, trading platforms that have a simple interface and good UX and even have risk management tools. Popular risk management tools include stop-loss orders, guaranteed stop-loss orders and limit orders.

How to spread bet

To help beginners like you, we’ve put together a short guide on how spread betting works.

Placing a spread bet is simply betting on whether your chosen financial instrument or sports instrument will go up or down.

The broker will offer 2 prices, the big price and the ask/spread price. When you spread bet, you are making a bet on the directions of the bid price against the ask price or vice versa. You can also bet on how much these prices will widen or go up or down.

Remember, this is not CFD trading or investing, you don’t own the underlying instrument or a contract. You are simply betting on the movements of the prices.

Let’s say you are spread betting, and go long (buy) on the price of Apple shares for $1 per point of movement. This means that for every point that Apple shares increase by, you earn $1. However, you would also lose $1 for every point that the Apple share price decreases by.

Contrastingly, if you were to go short (sell) on the price of Netflix shares for $5 per point of movement, the opposite would happen. You make $5 for each point Netflix shares decrease by, but would lose $5 for each point that the Netflix share price increases by.

Key Spread Betting Terms

Terms to understand when spread betting include:

Long Betting / Buying Long

This is to bet the price will rise from the ask price you open with

Short Betting / Selling Short

This is to bet the price will fall from the bid price you sell into

Bid Price / Sell Price

The lower quoted price of the bid and ask price. The price you sell out of a long trade or into a short trade.

Ask Price / Buy Price

The higher quoted price of the bid and ask price. The price you buy into a long trade or out of a short trade.

Spread

The difference between the bid and ask price

Point / Pips / Tuck

In spread betting, you bet on how much an instrument’s bid and ask price moved per point. Points, pips and tuck are all different measures that describe the unit movement in price for which you can gain or lose from your stake. The more the unit moves in a favourable direction, the more you can win.

Position

The position you take to enter a bet

Slippage

This is when you get an order cannot be filled at the intended price. Also called gapping

Types of Spread Betting

You can spread bet on just about anything that has changing and unpredictable movements in data. You will most commonly find sports and financial instruments are used for spread betting.

how to spread bet UK spread betting

Sports Spread Betting (aka Point Spread Betting)

Sport spread betting is another form of spread betting. It became popular in the UK in the 1980s, offering an alternative to fixed-odds betting.

You can also spread bet in the U.S. but it is effectively still a fixed risk bet on a line offered by the bookmaker with a known return. In the UK, on the other hand, betting above or below the spread does not have a known final profit or loss, making it a more variable investment.

This is the only type of spread betting on this list that is available in the Philippines.

You points bet on just about any sport. In the US, spread betting is very popular for major national sports such as American football, basketball, ice hockey and baseball.

Examples of sports betting providers include Spreadex, based in the UK, PointsBet based in Australia.

sports spread betting

Financial Spread Betting

Financial spread betting is another way to speculate on financial markets like you would trading derivatives, such as CFDs (contracts for difference).

Indeed, UK brokers make their largest share of the revenue from financial spread betting, as opposed to sports betting.

Trading is off-exchange, so therefore not cleared through an exchange and therefore subject to less regulation.

Given this, spread betting is often not limited to exchange hours or definitions so you can create new instruments and may even be able to implement guaranteed stop-losses.

Types of financial spread bets include:

Commodity Bets

Though not as widely offered as Forex or shares, commodity spread bets nevertheless allows you to trade the changing prices in the major global commodity markets such as gold, crude oil and natural gas.

Index Spread Bets

Index spread betting, as the name suggests, is trading against the price of stock market indexes. The stock exchange is where most traders learn their craft trading against the price of the main global stock market indexes such as S&P 500 and the FTSE 100.

You can also bet on individual futures, which are open around the clock (I.E. outside of normal trading hours) with most brokers.

Foreign Exchange (FOREX) Bets

While the Forex market is the most popular globally, Forex spread betting is advised for experienced traders given their volatile and unpredictable nature.

For beginners, before spread betting on Forex pairs (aka currency pairs), we recommend opening a demo account and practising trading and learning about Forex markets first, for beginners.

Interest Rate Spread Bets

The rates at which certain currencies pay interest in the interbank market is known as interest rate betting. Therefore, interest rate spread bets involve taking a view on whether you think rates are going up or down in the near future.

Share Spread Bets

Other than trading on share indexes as a whole, you can also spread bet on individual share prices, rather than holding a position. You can use margin to make (or lose) more money on the trade. That is, margin is being lent money by the broker to raise your real position on that share in order to increase potential profits.

Spread bets can be used in either direction you expect the share price will go, including short selling if it goes down in value.

Thus, it is possible to make money from falling share prices.

ETFs (Exchange Traded Funds)

Exchange-traded funds (ETFs) are basically a portfolio of related investment assets, such as stocks of companies in certain sectors or commodities such as precious metals.

ETFs are freely traded on exchanges and offer access to a wide range of assets which you can spread bet on market moves.

Cryptocurrencies

A relatively new addition, cryptocurrencies were invented almost out of necessity, with the modern digitisation of the global economy.

Cryptocurrencies are digital currencies that are operated away from a central bank and run on decentralised ledgers. As such, crypto spread betting is possible due to having an externally verified price.

Other Types Of Spread Betting

These days, spread betting has moved beyond sport and financial markets to cover a wide range of markets, such as house prices, but this is much less common.

Tax Implications

Spread betting has a different tax regime compared with securities and futures exchanges, particularly in the UK and Ireland.

In these countries, spread betting is designated as ‘gambling’, not investing, by the tax authorities. This means it is free from capital gains tax and stamp duty, despite being regulated as a ‘financial product’ by the FCA (Financial Conduct Authority) in the UK.

For this reason most financial spread betting brokers only offer spread betting services within the UK and Ireland. So if you are in Australia, Singapore, the UAE and of course the Philippines, forex brokers or CFD brokers you might otherwise use for trading, do no offer spread betting services.

What About CFDs?

It’s important to note that CFDs (or contracts for difference) cannot be spread bet on.

While trading CFDs and spread betting are similar on the surface, there are subtle nuances that differentiate the two.

The main difference between CFDs and spread betting is how they are taxed. Spread bets are capital gains tax-free (as explained later), while profits from CFDs can be offset against losses for tax purposes.

The other thing to note is, all spread bets have a fixed expiry date, while CFDs don’t expire (with the exception of futures).

So, in effect, you are entering into a contract and opening a position with CFDs while spread betting involves speculating on future price movements.

difference between spread betting and cfds

Spread Betting Brokers

There are plenty of great spread betting companies as well as brokerages and financial services companies offering spread betting, the major ones being:

Pepperstone

Pepperstone is a great all-rounder, known for its low trading fees, tight spreads and high-speed trading.

The broker uses some of the best trading platforms out there, including MetaTrader 4, MetaTrader 5 and cTrader, available via mobile app (iOS and Android) for tablet, desktop or webtrader.

The broker is FCA regulated in the UK and by ASIC (The Australian Securities and Investments Commission) in Australia, as well as multiple jurisdictions, including CYSEC.

ActivTrades

ActivTrades is a UK-based brokerage firm providing an online trading platform to trade Forex, CFDs and spread betting.

It provides services to retail and institutional traders via its own, in-house electronic trading platform, ActivTrader or the popular MetaTrader platforms.

You can also open a free demo account, to practice your trading strategy before you begin spread betting.

CMC Markets

Another early adopter of spread betting services, CMC Markets is well-trusted across the globe across nearly 12,000 tradeable instruments.

CMC Markets is known for its proprietary Next Generation trading platform which offers quality research and innovative trading tools, for risk management.

City Index

Founded in 1983, City Index has become the leading expert in spread betting.

It specialises in forex trading, spread betting and CFD trading, and offers competitive spreads from as low as 0.5 points.

City Index also offers free withdrawals and deposits.

Spreadex

As mentioned earlier, Spreadex is a well-known sports spread betting company offering over 10,000 global markets.

Spreadex also offers great charting analysis and is one of the few spread betting companies still offering up to 2,000 GBP credit facilities.

About the author: Justin Grossbard

Justin Grossbard has been investing for the past 20 years and writing for the past 10. He co-founded Compare Forex Brokers in 2014 after working with the foreign exchange trading industry for several years. He also founded a number of FinTech and digital startups including Innovate Online and SMS Comparison. Justin holds a Masters Degree and an Honours in Commerce from Monash University. He and his wife Paula live in Melbourne, Australia with his son and Siberian cat. In his spare time, he watches Australian Rules Football and invests on global markets.