Spread Betting Explained
How does spread betting work
The 'spread' in the phrase spread betting refers to the difference between the price at which you can sell and the price at which you can buy a financial instrument. A spread betting company will quote a sell (or 'bid') price and a buy (or 'ask') price, calculated around the live (or the estimated future) price of the underlying market.
What is spread betting
When you spread bet, you do not buy an actual share or futures contract. Instead you make a bet as to which way you think your chosen market will move. You are betting per penny or point movement in the underlying market, and the amount you wish to bet is your stake, which can be as little as £1/E1/$1 per point.
You can choose to bet that the market will rise or, alternatively, you can bet that it will fall. If you are right you will make a profit of your stake multiplied by each point the market has moved in your favour. If you are wrong you will make a loss of your stake multiplied by each point the market has moved against you.
For this reason you must be aware that your losses can increase dramatically if the market moves substantially in the opposite direction to your bet (for example, if you make an Up Bet on the FTSE 100 and instead of rising the index drops heavily).
At InterTrader.com we want to make sure you are protected from unmanageable losses should the market move against you. Our automatic stop-loss facility limits any loss you make to a pre-agreed amount when you open your bet. (Please note that stop-loss orders are not guaranteed.) For more information on our automatic stop-loss, and placing other types of order, see our User Manual.
All profits from spread betting are recognised as the winnings of a bet and are therefore exempt from Capital Gains and Income Tax in the UK.