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).
What Is Spread Betting?
Spread betting is a form of derivative trading where you can speculate on the future price movements of different financial instruments. Rather than buying or selling the underlying asset, you are betting on which way markets move, making a profit if your predictions are correct.
- The spread: the difference between the bid (buy) and ask (sell) price, determined by liquidity and volatility in the financial market you are betting on.
- The bet size: the amount of money (known as the stake size) you want to bet per unit of price movement of the underlying asset.
- The bet duration: the expiry date of your bet.
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 prediction is correct meaning the market price of the FTSE 100 increases, your profit will equate to your £10 stake x the number of points the market moves. If your guess is wrong, you will lose your stake x the number of points the market moves.
- Bullish: You buy (go long) the asset if you are betting the market price will increase in value
- Bearish: You sell (go short) the asset if you are betting the market price will decrease in value
How To Spread Bet
To get started as a spread bettor, you will initially need to open an account with a broker that offers spread betting and choose a trading platform. You will then need to make a deposit into the account so you have funds to bet with.
Spread Betting Example
Assume that the broker you’ve signed up with allows spread betting on stock markets. For a particular share, your trading platform will display the following information for the underlying market:
- Sell price: 100
- Buy price: 102
- Spread: 102 – 100 = 2
- Margin rate: 5%
Let’s assume you predict the share price will increase in the future so you decide to go long. This means opening a buy position with at £2 per point spread movement. Since you choose to trade with leverage of 20:1, you will need to deposit 5% of the position’s total value which is the required margin.
- Margin = ((£2 x 102) x 5%) = £10.20
If your prediction is 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. For this reason, 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. This matters because financial markets experience high levels of volatility, meaning there are risks to consider such as gapping and slippage.
Gapping is where the price jumps from one price to another without passing through the price level in between. Slippage is where there is a price change between the time you place your order and is executed.
Order types are one such tool to utilise to protect yourself against volatility and gapping. Examples of such order types include stop-loss orders and guaranteed stop-loss orders.
- 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 but doesn’t guarantee your order will be closed at your predetermined price which can occur due to gapping or slippage.
- 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.
What Types Of Spread Betting Exist In The UK?
Within the United Kingdom, there are two types of spread betting which may seem similar but are very different with only one broker offering both.
1. Financial Spread Betting
As mentioned above, financial spread betting involves speculating on assets’ future price movements. Spread betting is more popular for speculating on price movement in the short term and has a fixed end date, but there is nothing stopping you from holding onto a long position (you will just incur nightly interest fees for your open positions).
Financial spread betting means you are using financial products as the underlying instrument to derive the price. Spread betting providers offer a diverse range of asset classes and financial markets to choose from when placing a bet. These include (but are not limited to):
It can be easy to confuse CFD trading, Forex trading and spread betting and we get it since there are common features between them so we made two guides. The first guide compares spread betting to CFD trading while the second guide compares spread betting to forex trading.
2. Sports Spread Betting
Sports spread betting and financial spread betting are much the same except instead of betting on financial instruments like Forex and shares, you are betting on sports like football or horse racing. So rather than bet on the price movement of a currency pair, you bet on the movement in scores in a game or contest. As an aside, this is not to be confused with fixed odds sports betting, where you have a binary outcome in the result which can be either correct or wrong in your prediction.
For example, if you want to bet on the total goals in a football match and the broker offers a spread of 1.8 – 2, you would buy at 2 if you think there will be more than two goals in the game. Equally, you can sell at 1.8 if you think there will be less than two goals.
If you took this bet with fixed odds, and there were more than 2 goals – you would win a fixed amount back based on the odds given to you, and it would have been settled after the third goal was scored.
Whereas with spread betting, your bet would remain open, and you would earn more money for every goal scored in the game.
Now, if the game is a 5-5 thriller (with ten goals scored), you would have won your stake back x the difference between the number of goals and the spread.
So in this example, if you bet £10 per goal, you would receive £80 profit (10 goals – 2 spread that you purchased).
As you can see from the example, the concept of spread betting is similar for both financial and sports spread betting.
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.
1. 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.
2. 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 tax laws which 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 trading account type.
Spread Betting FAQs
Could I profit from spread betting?
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 and open a spread betting demo account before trading real money.
How do you spread bet successfully?
Sign up with a top UK spread betting broker, utilise risk management and education yourself, as well as develop robust trading strategies that will help you successfully spread bet. You can read our best spread betting strategy guide to learn more.
Can I spread bet with leverage?
Yes, similar to CFD trading, spread bettors can use leverage to increase their exposure. Although a leveraged product can magnify your spread betting profits, it also amplifies losses and risks.
Best UK Brokers For Spread Betting
Choosing your spread betting provider is similar to finding the best forex broker in the UK. 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 in Ireland and the United Kingdom, the broker should be regulated by the UK’s Financial Conduct Authority (FCA).
The top spread betting providers we recommend include:
1. Peppperstone – Best overall spread betting broker
Pepperstone stands out as our top pick for the overall best spread betting platform broker. Pepperstone offers competitive pricing, MetaTrader 4 (MT4) platform, robust risk management tools, and an extensive selection of financial markets to spread bet on.
2. City Index – Top MT4 broker for spread betting
If you want to automate your spread bets using the MT4 platform, then City Index would be an ideal broker for you. You can utilise its trading tools and automate your trades on the MT4 platform.
3. IG – Good spread betting broker for beginners
IG is a top choice if you are a beginner and need a trading platform that is clean yet full of features that can help improve your trading experience with its extensive range of trading tools. You can also take advantage of its IG Academy to learn how to trade the markets.
4. FXCM – Great spread betting broker for shares
We recommend FXCM as a solid choice if you want to spread bet on share prices. FXCM has a decent trading platform and a good choice of major stocks to choose from.
5. FxPro – Best spread bet risk management features
FxPro has a good selection of trading platforms with great risk management tools embedded in them.
6. CMC Markets – Top spread bet financial broker
CMC Markets is our top choice if you are an experienced trader who wants access to a wide range of markets (over 10,000+ products) to spread bet on.
7. SpreadEx – Good platform for finance spread bets
We like SpreadEx as they provide both sports and financial spread betting. So if you like to trade the markets during the week and have a bet on football over the weekend – SpreadEx is an ideal choice.
8. ThinkMarkets – Great spread betting app features
If you want a reliable mobile trading app, then we like ThinkMarkets because its easy to use, has notifications, and has a good selection of technical indicators
9. Markets.com – Top spread betting demo account
Markets.com has an excellent demo account if you want to try spread betting first with virtual money before opening a live account.