How To Spread Bet

How to Spread Bet

To get started as a spread bettor, you will initially need to establish your desired broker and trading platform. There is a range of FCA regulated brokers operating in the UK that offer different financial instruments, risk management tools and pricing.

Once you’ve signed up to an appropriate broker and made the required initial minimum deposit, you will be able to start spread betting.

Spread Betting Example

Assume that the broker you’ve signed up to allow spread betting on stock markets. For a particular share, your trading platform displays the following information for the underlying market:

• Sell price: 100
• Buy price: 102
• Spread: 102 – 100 = 2
• Margin rate: 5%

Say you predict the share price will increase in the future. Therefore, you go long, opening a buy position at £2 per point movement. As you are offered leverage and the margin rate is 5%, you will need to deposit 5% of the position’s total value.

• Margin = ((£2 x 102) x 5%) = £10.20

If your predictions are correct and the share price increases to a sell price of 152 and buy price of 154, you’ll make a profit from the spread bet:

• (£2 x (152-102)) = (£2 x 50) = £100

If your prediction is incorrect and the market price of the asset falls to a sell price of 62 and buy price of 64, your spread bet will result in a loss:

• (£2 x (62-102)) = (£2 x -40) = – £80

The above example shows that while payouts can be made spread betting, potential losses can be significant. It’s vital to incorporate risk management tools into your trading strategies.

Risk Management Tools

Spread betting providers will offer different risk management tools that will help you capture gains and minimise losses. As financial markets experience high levels of volatility, there are risks to consider such as gapping and slippage.

High levels of volatility in an underlying market may lead to gapping where the price jumps from one price to another, without passing through the price level in between.

A key tool spread bettors utilise to protect themselves against volatility and gapping are order types. Two order types commonly used as spread betting risk management tools are:

1. Stop-loss orders: allow you to set a predetermined price where your order is automatically closed if that price is met. A stop-loss aids in minimising losses, yet if volatility and slippage occur, your broker does not guarantee your order will be closed at your predetermined price.
2. Guaranteed stop-loss orders: the same as a normal stop loss, except the broker guarantees your order will be closed at your predetermined price, regardless of volatility or gapping.

Financial Spread Betting

There are two main types of spread betting, being financial and sports betting. As mentioned, financial spread betting involves speculating on assets future price movements.

Spread betting providers offer a diverse range of asset classes and financial markets to choose from. While each broker offers different financial instruments, common asset classes include:

• Forex
• Stocks
• Commodities
• Indices
• ETFs
• Interest Rates
• Bonds
• Options

Please note: the UK’s Financial Conduct Authority (FCA) recently implemented regulation that bans retail investor accounts from accessing and trading cryptocurrency markets. If you want to focus on cryptos, you will need to trade the asset as a CFD with a non-FCA regulated broker outside of the UK.

Sports Spread Betting

When sports betting in the traditional manner, you bet a stake on the result of a sporting event at the fixed odds determined by a bookmaker. Yet, in sports spread betting, you place a bet on a spread of outcomes, profiting if the final score of the event is above or below your predictions.

For example, you may place a bet on whether the final score for an NFL game will be higher or lower this season than it was the previous season.

There are various sporting events that you can spread bet on, such as:

• Football/soccer
• Horse racing
• Cricket
• Rugby union
• Greyhounds
• Tennis
• Golf
• Darts
• Snooker
• American football
• Basketball
• F1

A Point Spread Strategy

There are many spread betting strategies, but a point spread is one of the most popular approaches when betting on sporting events. A point spread strategy involves placing a bet that a team will win by a certain number of points or goals, or they must not lose by a certain number of points or goals. For example, pretend you place a bet on a football game:

• United Kingdom Team +5.5
• Australian Team -5.5

This means that Australia is the clear favourite to win, while the UK team are the underdogs. Australia must win by at least 6 points or more for the bet to win. Or, the UK team must not lose by 6 points for the point spread strategy to be successful.

As well as developing strategies on sporting events, certain spread betting providers also offer political events such as upcoming elections. For example, who the next Labour or Conservative leader may be.

Spread Betting vs CFD Trading

Spread betting and CFD trading are two types of derivative trading in the UK. While both trading styles have many similarities, there are also some key differences worth noting.

Similarities between CFD Trading and Spread Betting

• Both spread betting and CFD trading are margined derivative products that can be traded with leverage, amplifying gains, losses and risk.
• You can trade 24 hours a day with the ability to go both long and short.
• You are not buying or selling the physical underlying asset, therefore you do not pay stamp duty on profits from either style of trading.
• Both spread betting and CFD trading are supported on the world’s most popular trading platforms, such as MetaTrader 4 and MetaTrader 5.

Differences between CFD Trading and Spread Betting

• Spread betting gains are exempt from Capital Gains Tax (CGT), while profits made from CFD trading are subject to CGT that reduces your net profit.
• All spreads are commission free when spread betting, CFD brokers often offer a choice of commission or no commission spreads.
• Deal sizes are in pounds per point for spread betting, while in CFD trading it equates to the number of contracts you are trading.
• Only retail investor accounts are available for spread betting, while CFD trading can be via a retail or professional account type.