Learning how to spread bet involves understanding your spread betting providers offering in terms of risk management tools, pricing and financial market access, as well as how your individual circumstances affect your tax position (capital gains tax).
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Spread betting is a form of derivative trading where you can speculate on the future price movements of different financial instruments and events. Rather than buying or selling the underlying asset, you are betting which way the markets move, making a profit is your predictions are correct.
For example, if you believe the FTSE 100 is going to increase in value, you may bet a stake of £10 per point of movement. If your predictions are correct and the market price of the FTSE 100 increases, your profit will equate to your £10 stake x number of points the market moves. If your guess is wrong, you will lose your stake times the number of points.
When compared to traditional or CFD trading, there are some key benefits to spread betting:
Please note: Only those based in the UK can spread bet, with no other major financial jurisdictions permitting the type of derivative trading. Only brokers regulated by the UK’s Financial Conduct Authority may offer access to spread betting markets.
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.
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:
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.
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:
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:
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.
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:
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:
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.
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:
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:
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 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.
Spread betting is legal in the UK and Ireland, and can be profitable, yet there are high risks of losing money. If you are new to spread betting, it’s recommended you educate yourself on areas such as risk management, pricing, brokers and different spread betting strategies before you get started.
Signing up to a top spread betting provider, utilising risk management and educational tools, as well as developing robust trading strategies will help you successfully spread bet. To find out more about the different spread betting providers available, click here.
Yes, similarly to CFD trading, spread bettors can use leverage to increase their exposure. Although leverage can magnify your spread betting profits, it also amplifies losses and risk.
When choosing your spread betting provider, it’s important to assess the trading platform, risk management tools, financial market access, and pricing the broker offers. As spread betting is only available to Irish and United Kingdom traders, the broker should be regulated by the UK’s Financial Conduct Authority.
Top Spread Betting Providers include:
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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.