Spread betting allows you to trade on the price of many financial products tax free. (1)
You can go long (buy) or short (sell) on thousands of instruments with a small initial outlay.
What is spread betting ?
Spread betting is extremely popular with traders in the UK and Ireland because the profits are tax free. Spread bets are available on instruments such as shares, indices, forex and commodities. Spread betting allows you to take advantage of trading opportunities in both a rising and falling market. You open a position based on whether you think a market will rise or fall, if the position moves in your chosen direction, you will make a profit. If it moves in the opposite direction, you will make a loss.
Spread betting is leveraged, this means when you make a trade you are only required to pay a small deposit and not the total value of the trade. This means both your profits and losses will be magnified.
How does spread betting work ?
When spread betting you are not actually buying the underlying instrument, such as shares in BP or an Index. You simply place a spread bet; on the direction you believe the future price of that instrument will move.
Once you have decided which direction a market will move, long or short, you then place a bet based on the amount you want to make or lose per point movement. If the market moves in your chosen direction, you will make a profit and if it moves in the opposite direction, you will make a loss.
The profit or loss is calculated by multiplying the amount of points moved by the amount that you bet per point movement.
1 Choose a market
You need to choose what instruments you are going to trade; this could be based around your method of analysis whether fundamental or technical. A good place to start could be the level of risk, if you compare the risk of trading a single stock with low volatility against trading crude oil there is a stark difference. It is certainly best to take one market at a time, learn everything you can and feel comfortable trading, before you take on the next one.
Trade forex on a range of major, minor and exotic pairs using spread betting or CFDs. More 24 hour markets available than any other platform.
Trade on low spreads across more than 17,000 markets, with some available 24/7.
2 Find a trading opportunity
You never want to miss out on a trading opportunity, you can receive numerous daily reports including:
Market daily report
Upgrades and downgrades
Technical analysis reports twice a day
There is also our breaking news service, crucial for taking advantage of event driven news, delivered by telephone, or emailed. Or utilise the platform with buy and sell signals, trade ideas and Reuters news these are just some of the platform's features that you will benefit from.
3 What does it mean to trade long or short with spread betting?
One of the big differences with spread betting is the ability to still make a profit in a falling market. When spread betting, whether you trade long or short, will depend on which way you believe the market will move.
Going long is when you believe the market price will increase over a certain period. If you felt that the electrical vehicle market was about to take off and Tesla would be at the forefront of this, you would take a long position.
Going short is when you believe the market price will decrease over a certain period. If you believed that the rally in oil was over and it was about to decline, you would take a short position.
The spread is simply the difference between the buy price and the sell price.
What is the spread?
Neither the buy price nor the sell price represents the exact value of the financial asset you are betting on (also known as the underlying asset). Instead, the buy price is slightly higher than this value, and the sell price is slightly lower.
In the above example, the real-world value of the FTSE would be halfway between the two prices, at 6500. The difference between the buy and sell prices is just 1.0 in this instance, which is a spread of one point.
How does the spread affect me?
The spread is essentially a fee that your spread betting provider charges to place your bet, and the narrower the spread, the better it is for you. Let us look at why.
To close a bet, you need to take the opposite action to when you opened it. So, if you open a bet by 'buying', you close by 'selling' and vice versa.
In our FTSE example above, if you 'buy' at 6500.5, you'll need to 'sell' at the same price or higher when you close the bet, or you'll make a loss. This means the underlying FTSE price will have to rise by one point before you break even.
5 Decide your bet size
With spread betting, you can set the amount you want to trade per point movement of the underlying instrument (there are minimum bet sizes). For example, you could be trading at £10 a point, this means for every point movement in the underlying instrument, you will either make or lose £10.
Spread betting is a leveraged product, which means when you trade you are only required to pay a small deposit and not the total value of the trade. Leverage means your profits or losses will be magnified. You should always be aware of your total trading exposure not just how much margin is required. So, with indices as an example, you could pay a small deposit of £100 (5%) and get £2000 total value of trading exposure (100%). This allows you to trade with 20x leverage (20:1 leverage ratio).
To open a spread bet, you need to place a small initial deposit. It is also called the margin or deposit margin. In addition to your deposit margin, if your trade starts to incur losses that are higher than your deposit margin, you will be required to pay a maintenance margin. It is your responsibility to ensure you have adequate funds on account, however there will be a notification email sent to you, or an alert will be triggered on the platform, this is known as a “margin call” and the request will be to add funds to cover this amount on your account.
8 Bet duration
The bet duration is the length of time before your position expires. All spread bets have a fixed timescale that can range from a day to several months away. You are free to close them at any point before the designated expiry time, assuming the spread bet is open for trading.
Our spread bet durations include:
Daily funded bets. These bets run for as long as you choose to keep them open, with a default expiry in the distant future. They offer our tightest spreads but are subject to overnight funding – so are generally used for short-term positions
Quarterly bets. These are futures bets that expire at the end of a quarterly period – although they can be rolled into the next quarter if you let us know in advance. They have wider spreads, but lower funding costs that are built into the price, making them suitable for longer-term speculation
9 Risk management
Set a stop loss to close your position automatically if the market moves against you. Stop losses are free but your position may be closed out at a lower price than your order if the market gaps.
Take profit with a limit order
Set your limit on an instrument and your position will be automatically closed if that limit hits your level.
Guaranteed stop loss
Like a standard stop loss but guarantees that your order will be closed at the level requested by you. There is no cost to set up a guaranteed stop loss, But you will pay a small premium if it is triggered.
Trailing stop losses
No need to adjust your stop. A trailing stop will move with your profits. This allows you to potentially increase your profits as the price goes up whilst still retaining a stop loss at a set distance away. As with standard stop losses, trailing stops can be subject to slippage.
Negative balance protection
Negative balance protection ensures that you will never have a negative balance as our platform provider IG will always bring your balance back to zero at no cost to you.
Go about your business and let the system notify you of any price changes. When an instrument reaches your chosen price you will be notified by email or text.
In order to protect you from large losses, your positions will sometimes be closed out by the dealers/system. If your account equity (cash balance +/- running profit/loss) doesn’t cover your margin requirement. This is a margin call. Positions that are on margin call may also not be closed so it is your responsibility to monitor your positions and maintain enough margin at all times.
9 Closing your position
You can monitor all your trades price movements on your computer via the online platform or the trading apps on your smartphone or tablet. When you feel it is time to close your trade, click the position tab, select the position you wish to close and click ‘close’.
You can also take the opposite position, if you have selected the ‘net-off’ option on the platform, rather than ‘force open’.
In a netted off trade, an existing position would be automatically closed if the new position would cancel it out.
Force open is a function on the trading platform which enables you to open a position in the opposite direction to an existing bet on the same market. The result would be a long and short position on the same asset, which can be a useful tool for hedging.
What are the costs of spread betting?
Spread betting margin
Spread betting is a margined product. This means that you are only required to pay a deposit to control a much larger amount.
This will magnify profits and losses.
Spread betting spreads
This is the cost to trade. The spread is the difference between the buy and sell price. The spread is effectively a commission charged for executing the trade. The spreads we can offer are among the lowest in the industry. You may also be charged overnight funding on some positions.
Benefits of spread betting
Dedicated relationship manager
Highly experienced and qualified, and on hand to assist you as much or as little as you need.
No stamp duty to pay
Unlike most UK shares there is no stamp duty to pay.
Small initial deposit
Only pay a small percentage of the trade value.
Only a dealing spread.
No capital gains tax to pay (1)
All profits are tax free.
Negative balance protection (2)
You can never lose more than is in your account.
Guardian Stockbroker reviews
Positive: Professionalism, Quality, Responsiveness, Value
I could not more highly recommend Guardian Stockbrokers, everyone has been brilliant. The attentiveness, training and technical detail provided, has enabled a fast track learning and an ability to manage the portfolio in a way that would far exceed my own capabilities. It is almost as though they own the positions themselves; via their due-diligence and proactive manner of continuous monitoring. Above and Beyond.
Positive: Professionalism, Responsiveness
Professional and proactive I’m really happy that they were recommended to me.
I would recommend Guardian Stockbrokers.
I've known Guardian Stockbrokers since their inception.
When dealing with trading, you want to work with people that are professional, personable and trustworthy.
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More information on spread betting
You will find further information on spread betting use the links below
Tax laws are subject to change and depend on individual circumstances.
Negative balance protection applies to trade related debt only and is not available to professional traders.