Financial spread betting is a flexible form of derivatives trading that enables investors to speculate on a wide range of markets. As with CFD trading, financial spread betting is conducted online through spread bet brokers who provide access to the markets via trading platforms. Although similar, spread bets and CFDs do have their differences, including some unique advantages of spread betting that are not found in other forms of trading.
An Overview of Financial Spread Betting
When financial spread betting, a trader is speculating on whether the price of an asset will rise or fall. Instead of buying or selling lots of currency or a number of shares, as with CFD trading, traders bet specific amounts of money per point of market movement. This is referred to as the trader’s ‘stake’. To calculate profit or loss, a trader must then multiply their stake by the number of points the market moves in any given direction. Spread betting is available on a wide range of financial markets including forex, shares, indices and commodities.
What Are the Advantages of Spread Betting?
|Capital Gains Tax|
|Long & Short|
|No Stamp Duty|
|From 5% Deposit|
|Online & Phone|
Financial Spread betting has a number of distinct benefits when compared with other methods of investing in the world’s markets. The advantages of spread betting include:
One of the main advantages of spread betting, when compared with other forms of trading, is that profits are exempt from capital gains tax. For example, when trading shares, capital gains tax is deducted from any profits earnt, reducing the amount of money taken home at the end of a trading day. In comparison, when spread betting on shares or any other market, capital gains tax does not apply, making it one of the most cost-effective ways to trade.
No Stamp Duty
In addition to earning tax-free profits*, when financial spread betting, there is no stamp duty to pay. As it is a form of derivatives trading, investors are not taking ownership of the underlying asset, meaning that stamp duty does not apply. This reduces the costs of financial spread betting even further, making it a great deal cheaper than other forms of investing.
Smaller Initial Deposit
Spread betting is a leveraged product, meaning that a smaller initial deposit is required to begin trading. When trading on margin, investors only need to put up a small amount of their own capital, taking the rest from their spread bet broker in the form of a loan. The deposit is then used to guarantee any open positions traders may have on the market. The ability to use leverage when spread betting makes it accessible to a greater number of traders as there is no barrier to entry in regard to starting capital.
More Trading Opportunities
As a form of derivatives trading, financial spread betting enables investors to speculate on both rising and falling markets. This provides more opportunities when compared with other, more traditional forms of investing, as traders can earn tax-free profits* by going long and by going short on a wide range of financial instruments.
Wide Range of Markets
Another advantage of spread betting is that traders can invest in thousands of financial instruments from a single trading account. Investors can spread bet across a range of asset classes including forex, indices, shares, commodities, bonds and ETFs, on a single trading platform, further increasing their trading opportunities.
Risk Management Tools
Having a sound risk management strategy is of the utmost importance for any trader wanting to be successful when investing in the world’s markets. When financial spread betting, traders can make use of a wide range of risk management tools including guaranteed stop-loss orders and partial-position closing. This allows investors to limit any potential losses in the case the market moves against them.
*Tax laws depend on individual circumstances