Spread betting is extremely popular with traders in the UK and Ireland because there is no commission and the profits are tax free.
What is spread betting ?
A trading instrument that allows you to take advantage of opportunities in both a rising and falling market. You can 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.
Your positions use leverage, 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 or losses will be magnified. Spread bets are available on instruments such as shares, indices, forex and commodities. Spread bet uk
Spread betting tax benefits for UK clients
Spread betting is considered to be a tax-efficient trading strategy in the UK, as it is exempt from stamp duty and capital gains tax (CGT). This means that traders can potentially keep more of their profits, as they are not subject to the same tax rules as traditional investments such as buying shares.
The exemption from stamp duty means that traders do not have to pay the 0.5% tax that is usually charged on the purchase of shares in the UK. This can result in significant cost savings for traders who engage in frequent trading.
Furthermore, profits are also exempt from CGT, which means that traders do not have to pay tax on any gains made from their trades. This is a significant benefit compared to other investment vehicles, such as stocks or mutual funds, where CGT is applicable on profits above the annual allowance.
Overall, the tax benefits can make it an attractive option for UK clients who are looking for a tax-efficient way to trade the financial markets.
How does spread betting work ?
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. 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 ?
One of the big differences, is the ability to still make a profit in a falling market. When trading, 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 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
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.
You are using 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.
How to get started with spread betting ?
If you're new to spread betting, getting started can seem daunting. However, with the right knowledge and approach, you can start trading with confidence.
At Guardian Stockbrokers, we understand that getting started with spread betting can be daunting for some traders. That's why we've outlined some simple steps to help you navigate the process:
1 Learn the basics of spread betting:
Before you start trading, it's essential to understand the fundamentals of spread betting. You can do this by reading our introductory guides, watching online tutorials, or attending one of our training courses. We cover everything from the spread, leverage, margin, to order types so you can trade with confidence.
2 Choose a reputable spread betting provider:
At Guardian Stockbrokers, we pride ourselves on being a trusted and reliable spread betting provider. We offer a wide range of markets to trade on and are regulated by the Financial Conduct Authority (FCA). Before selecting a provider, make sure to read reviews and do your research to ensure that they are trustworthy and offer a diverse range of markets.
3 Open a spread betting account:
To start trading, you'll need to open a spread betting account with us. The process is simple and can be completed online by filling out an application form and providing personal and financial information. We also require proof of identity and address, such as a passport and utility bill.
4 Fund your account:
Once your account is set up, you'll need to deposit funds to start trading. We offer a variety of payment methods, including bank transfer and debit card. Make sure you understand the minimum deposit requirements and any fees associated with funding your account.
5 Choose your markets:
At Guardian Stockbrokers, we offer a wide range of markets to trade on, including indices, stocks, commodities, and currencies. Before you start trading, research the markets and analyse their past performance to identify potential trading opportunities.
6 Develop a trading strategy:
To be successful at spread betting, you need to have a trading strategy that suits your risk tolerance and trading style. Our team of experienced traders can help you develop a strategy that fits your needs, manages your risk, and ways to help monitoring your trades. We also recommend keeping a trading journal to track your progress and learn from your successes and failures.
7 Start trading:
Once you've chosen your markets and developed a trading strategy, you're ready to start trading. We recommend starting with small trade sizes and gradually increasing your position sizes as you gain more experience and confidence. Our team is always available to help review your strategy as needed.
At Guardian Stockbrokers, we're committed to helping our clients trade with confidence. Our team of experts is always available to answer any questions and provide guidance to ensure that you have a successful trading experience.
Spread betting strategies
Spread betting strategies are methods traders use to speculate on the direction of price movements in the markets. Here are some common strategies, along with their pros and cons, and examples of when they may be most effective:
1 Trend following strategy:
This involves identifying the direction of the trend and betting on that direction. Traders using this strategy look for the direction of the trend by analysing charts and technical indicators. They then place bets on the direction of the trend, either buying or selling.
Pros: Trend following is a simple and easy-to-understand strategy. It is also suitable for both short-term and long-term trading.
Cons: Trend following can be risky as trends can reverse suddenly. It can also be challenging to identify the direction of the trend accurately.
Example: A trader might use this strategy to bet on the trend of a stock that has been consistently rising for the past few months.
2 Breakout strategy:
This involves identifying a key level of support or resistance and betting on the direction of the breakout. Traders using this strategy wait for the price to break above or below the key level before placing their bets.
Pros: Breakout trading can be very profitable if the price continues to move in the direction of the breakout. It can also be a low-risk strategy as traders can set stop-loss orders to limit their losses.
Cons: False breakouts can occur, leading to losses. It can also be challenging to identify key levels accurately.
Example: A trader might use this strategy to bet on the breakout of a stock that has been trading within a tight range for an extended period.
3 Range trading strategy:
This involves betting on the price staying within a particular range. Traders using this strategy identify a range of prices within which the asset has been trading and place bets on the price staying within that range.
Pros: Range trading can be a low-risk strategy as traders can set stop-loss orders to limit their losses. It can also be effective in markets with low volatility.
Cons: Range trading can be unprofitable in markets with high volatility as prices can break out of the range suddenly. It can also be challenging to identify the range accurately.
Example: A trader might use this strategy to bet on the price of a currency pair that has been trading within a narrow range for an extended period.
4 News trading strategy:
This involves betting on the price movement of an asset in response to significant news events. Traders using this strategy monitor news sources and place bets on the expected market reaction to the news.
Pros: News trading can be very profitable if the trader correctly predicts the market's reaction to the news. It can also be a low-risk strategy as traders can set stop-loss order
The market reaction to news can be unpredictable, and traders can suffer significant losses if they get it wrong. The spreads can widen significantly during news events, making it harder to make profits.
Example: If there is a positive earnings report for a company, traders can take a long position by betting that the stock price will rise. If the market reacts positively to the news, the trader will make a profit.
What are the costs?
Its 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.
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.
What are the 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 Stockbrokers 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.
Guardian Stockbrokers are all of the above.
I'd recommend them any day!
You will find further information 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.