As a low-cost, convenient way to trade financial markets, spread betting can suit a variety of trading styles and goals. The basic trading mechanism makes it ideal for new traders, while it is adaptable enough to suit more experienced traders.
Spread betting can be incorporated in a range of trading strategies using technical analysis, market news or fundamental analysis as a basis for trading decisions.
Many different types of trader choose spread betting for all or part of their trading needs. Let’s look at a few example traders:
Has an interest in financial markets and the factors that cause price movements. Wants to back his/her own judgement in the markets without a large initial outlay or long-term commitment. Attracted to the small minimum trade sizes of spread betting, tax-free trading*, the low initial margin requirements and the lack of set-up charges.
A very active trader taking several new positions a day, some lasting as short as a few minutes. Seeks to profit from many small market moves and so benefits from the low cost of spread betting and the speed of trading in and out. With InterTrader the day trader is also supported by a wide range of Rolling Daily markets at tight spreads, and a selection of powerful charting tools.
Keeps positions running for anything from a day to a month. Looks for a larger profit per trade than the day trader but still keeps a variety of positions – may switch between Rolling Daily positions and futures to suit the specific goals and intended duration of each trade.
Targets a sizeable profit per trade planned over whole quarters. Not after quick returns and happy to run positions at a short-term loss for a successful long-term outcome. Chooses spread betting to maximise returns on his/her investment capital by trading on margin. With InterTrader.com the long-term investor also benefits from a wide range of futures markets and flexible order handling to manage long-term positions.
Uses spread betting to hedge an existing portfolio of physical shares or other assets. The variety of markets available for spread betting gives ample opportunity to diversify: for instance you could hedge your share holdings with spread bets on individual shares, entire indices or even tangentially related markets such as crude oil, interest rates or government bonds.
Both spread betting and CFDs give you leveraged trading on financial markets without the need to make a physical purchase. Both allow you to go long or short and both are free from stamp duty. So which product should you choose?
The main difference with spread betting is that all your profits are tax-free* under current UK law. You keep everything you make. Also, many traders find that the ‘pound-per-point’ mechanism of spread betting provides a simple way to keep track of your profit and loss. To find out more see our Spread Betting Examples.
CFDs are sometimes favoured by equity traders as they more closely replicate the practice of trading physical shares. Instead of betting per point you buy or sell a set number of shares as a CFD. Also, while your profits are not tax-free, any losses from CFD trading can be offset against other income for tax purposes. See our CFD Trading Examples.
*UK taxpayers only. Tax treatment depends on the individual circumstances of each client and may change in the future.