Spread Betting Explained
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 per point.
Because you never actually make a physical purchase or sale you are not liable for stamp duty or Capital Gains Tax.* And to open your position you only need to put down a deposit, a small fraction of the full value of your position.
In this video we explain how spread betting works and the advantages of trading with InterTrader.com, an award-winning spread betting provider.
How does spread betting work?
The ‘spread’ in spread betting is the difference between our SELL price and our BUY price. If you think the price is going to rise you BUY, or ‘go long’, and if you think the price is going to fall you SELL, or ‘go short’.
You also need to decide your stake, which is the amount you’re betting per point. For every point the market moves up or down, you’ll win or lose this amount. So if you BUY £5 per point and the market rises 5 points, you’ll make £25.
To open your position you put down a deposit to cover any potential losses, known as ‘margin’.
Be careful. While your profit can increase dramatically if the market moves substantially in your favour, so can your loss if the market moves against you, and you may lose more than your initial margin.
Protecting against losses
When you place your spread bet with InterTrader.com, you’ll create a ‘stop-loss’ order to exit the trade automatically if the price moves a certain amount against you. As the name suggests, this order acts as a safety net, stopping you from making a greater loss.
For instance your stop-loss may be placed 10 points below your BUY price, ready to close your position if the price drops more than 10 points. If you don’t set a level for your stop-loss it will be assigned automatically when you place your trade, for your protection.
Stop-loss orders are not guaranteed, so may be subject to slippage and price gaps in fast-moving markets. For absolute risk protection you should choose a Guaranteed Stop, for a small premium.
There are several ways you can discover more about spread betting and whether it is right for you: