SPREAD BETTING

More and more people are trading from their own personal accounts due to advances in technology so that you can trade from home, or on your smartphone, tablet etc. Many of these types of traders will use spread betting accounts. These markets are generally traded by individuals who wish to trade in smaller amounts by way of correctly predicting price movements given to them by the market provider (Company they choose to open a spread betting account with) in a given market. Spread betting also has the advantage in the UK of being exempt from stamp duty and capital gains tax when profits are made. Whilst these types of traders are growing spread betting is deemed illegal in many countries such as the USA, Japan and Australia for example.

Whilst it may be banned in many countries for being classed as gambling or betting, the UK regulates spread betting companies through the Financial Conduct Authority (FCA). Spread betting is considered riskier than more traditional markets as they are not traded on an exchange where prices tend to be more stable, most spread betting companies make profit by way of quoting a spread between the buy and sell prices which can fluctuate continuously, therefore costs from the spread can vary significantly.

When individuals spread bet, you choose whether the price of a product or financial instrument is likely to go up or down, and decide how much to bet. The amount you wish to bet per point of movement in price is your stake. Therefore, in summary Spread betting is a derivatives product where you attempt to make money by correctly predicting and trading price movements of financial markets which can include including indices, shares, currencies and commodities.

Individuals use spread bets to speculate on price movements regardless whether the markets are going up or down. For example, if you go long (buy), your profits will go up in line with any increase in that price. If you go short (sell), your profits will go up in line with any fall. You make losses if your trade in the market goes in the opposite direction to your price prediction.

As mentioned earlier Spread betting can be done on a relatively small deposit of money in your account because it is a margined product that only requires you to deposit a small percentage of the full value of your position in the market. Whilst this may seem attractive it is not for everyone because losses from an initial capital outlay can be significantly higher than in traditional trading.