What is spread betting? A guide to spread betting for traders
Learn all about spread betting, its potential benefits, and why Capital.com is the right place to open your spread betting account.
What is spread betting?
Spread betting is one of the most popular ways to trade derivatives in the UK. It involves speculating on the price movements of an underlying asset, such as a stock or commodity, without physically owning it. It enables you to trade with leverage, meaning you can control large positions with a relatively small amount of capital, which increases both profits and losses. As a form of trading financial derivatives, spread betting is a potential alternative to CFD trading.
When you spread bet, you take a position on a market that’s either rising or falling (known as going long or short), and stake a chosen amount of money for every point the market moves. Your profit or loss figure is dependent on whether the price moves for or against your position between opening and closing the trade.
The key features of spread betting
There are a number of features that define the process of spread betting as a financial derivative. Here are a few of the main ones.
Trading on margin
Like CFD trading, spread betting enables you to trade on margin, also known as trading with leverage. This means you only have to put down a fraction of the trade’s value, with the rest effectively loaned to you by the broker. It also means you require less funds than you’d need if you were trading the underlying asset itself. Margin percentages may vary according to the asset class you’re trading. For example, trading an index may require a margin of 5%, while the margin for forex pairs can be as low as 3.33%.
Trading on margin means you have the potential for larger profits than your initial outlay. However, it can also amplify losses, so it’s important to use it with caution and have a solid risk-management plan in place.
Going long or short
Having the choice of going long or short is another key benefit of spread betting, as it is with CFDs. For example, if you are spread betting on shares, you can speculate on a stock’s price falling as well as rising. If you were buying a physical stock through a traditional stockbroker however, you wouldn’t be able to do this.
Localised tax benefits
Also, spread betting offers tax benefits in some countries. In the UK, for example, spread betting is usually exempt from capital gains tax and stamp duty,* but you should always check with a tax specialist if this is the case for you. Losses incurred through spread betting cannot be offset against other capital gains, unlike with CFDs.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
Trading per point
Finally, the ability to trade per point with spread betting can be a draw for some traders who may prefer this format to trading contracts using CFDs.
Costs involved in spread betting
For every spread bet you make, you’ll pay a fee based on something called the spread. That’s the difference between the buy and sell price of a market, and the way brokers like us make money from our service. You may also pay additional fees, for example if you use a guaranteed stop-loss* or if you hold a trade overnight. As with all Capital.com instruments, you won’t pay any commission when you spread bet.
Here’s the buy and sell price of an asset visualised, showing the spread from which our fee is derived. The size of the spread can vary depending on the asset, based on factors such as market liquidity and volatility, meaning that your cost of trading can also vary in kind. It’s advisable always to make sure you’re aware of the cost of trading before you open a position. You can do this via our charges and fees page.
*Stop-losses may not be guaranteed.
How to spread bet
It’s easy to learn spread betting basics with Capital.com. Once you sign up and your account has been approved, you may want to practise spread betting with our user-friendly demo account. Also, it can be helpful to research a range of markets to get a feel for the fundamental and technical drivers of their prices. When you’re ready to start with live money, here’s what to do.
- 1. Choose a market to trade, based on your trading goals
- 2. Decide on your trade size
- 3. Consider applying a stop-loss to manage risk
- 4. Open your position long or short
- 5. Manage your position, monitoring fundamental and/or technical drivers
- 6. Close your position
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Spread betting examples
Index: UK 100
Let’s say you want to spread bet on the UK 100 (FTSE 100) index at a price of 7,500.
After conducting some fundamental analysis on the market, you think it will rise. You open a long spread bet position on the UK 100 worth £10 per point of index movement. Your position is worth £75,000 (10 X 7,500) but with just a 5% margin on indices, you only have to put down £3,750.
Over a few hours, the index rises by 30 points to 7,530 and you close the position.
You’ve made a profit of £300 (30 X 10), minus the spread cost and any additional fees.
Forex: GBP/USD
You decide to spread bet on GBP/USD.
Following research, you believe the pound will weaken against the dollar and choose to open a spread bet short on GBP/USD at 1.2500 (shown as 12,500 on the Capital.com platform), worth £10 per point of movement. Your position is worth £125,000 (10 X 12,500) but with just 3.33% margin on forex, you only have to put down £4,162.50.
Over a few hours, the GBP/USD price rises by 50 points to 12,550 and you close the position.
You’ve made a loss of £500 (50 X 10), plus the spread cost and any additional fees.
Spread betting benefits with Capital.com
At Capital.com, we’re proud to have won the ‘Best Spread Betting Platform’ award at the ADVFN International Financial Awards 2022. We were also shortlisted for the ‘Best Spread Betting Provider’ award at the Investors’ Chronicle 2023 Investment Awards.
Here’s why our spread betting service is so acclaimed by some of the leading authorities in the trading world.
- A comprehensive range of 2,900+ spread betting markets across commodities, indices, shares and forex
- No stamp duty or capital gains tax*
- Rapid withdrawals**
- Clear, easily-navigable trading platform, helping you spread bet with all the tools you need, when you need them
So why not join our 84,000+ spread bettor clients and take a position with us today.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
**98.5% of our traders’ withdrawal requests were processed within 24 hours in 2023 according to Capital.com Group server data.
