Spread betting has many advantages over traditional methods of investing such as share trading.
The important distinction between share trading and spread betting is that you don't physically own the shares when you spread bet. Instead, you trade on the performance of the share price. Therefore you don’t pay capital gains tax or stamp duty on any profits you make, stock broker’s commission or any account fees, which can be a big saving for investors.
Financial spread betting is advantageous as you can profit from a falling market just as easily as a rising market. It does not matter which way the markets are going, you can back your judgement either way. Visit our spread betting example for more details.
Spread betting is not only about trading on share prices; as an investor you have access to thousands of instruments including global indices, commodities, sectors, bonds and currencies.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
One of the key advantages of spread betting is that it offers ‘margin’ or ‘leverage’. This means you can make a bet without the need to put down the full value of that transaction as you would with a stockbroker. Consequently your funds are not tied up in a single trade which means you can use the rest of your capital for other investments.
As a result, your risk and reward potential will be magnified. Although your profits may exceed those of a traditional share purchase, your potential for loss can also exceed your initial deposit should the market experience sudden movements. However, there are many ways of managing your risk with a range of flexible orders including stop losses, limits and OCOs (one cancels other) orders. These orders can be placed online and are free to use.
Compare the cost of buying 10,000 shares compared to the equivalent spread bet of £100 per point.
Buy Price | 110p |
Purchase | 10,000 Shares |
Initial Outlay | £11,000 |
Commission Charge | £12.50 |
Stamp Duty (0.5%) | £55 |
Total Outlay | £11,067.50 |
Buy Price | 110p |
Purchase | £100 per point |
Initial Outlay (5%) | £550 |
Commission Charge | In spread |
Stamp Duty (0.5%) | Nil |
Total Outlay | £550 |
Imagine the share price rises by 10p to 120p
Sell Price | 120p |
Gross Profit | £1000 |
Financing Charge | Nil |
Total Commission Charges | £25 |
Stamp Duty (0.5%) | £55 |
Net Profit/Loss | £920 |
Sell Price | 120p |
Gross Profit | £1000 |
Financing Charge | £1.36p |
Total Commission Charges | Nil |
Stamp Duty (0.5%) | Nil |
Net Profit/Loss | £998.64 |
So using a spread bet, you are able to make £78.64 extra profit compared to an equivalent share trade.
Please note that while trading on margin using a spread bet will magnify your profits, it will also magnify your losses if the instrument’s price moves against you.
Spread Betting, is a leveraged product and carries a high degree of risk to your capital and it is possible to lose more than your initial investment. Only speculate with money you can afford to lose. These products may not be suitable for all investors, therefore ensure you fully understand the risks involved, and seek independent advice if necessary.
Digital Look Markets is a trading name of CMC Spreadbet Plc who are authorised and regulated by the Financial Services Authority 170627. Spread betting services are provided by CMC Spreadbet Plc trading as Digital Look Markets, to whom you have been introduced by Digital Look Ltd. All dealing, administration and settlement in relation to these services is undertaken by CMC Spreadbet Plc. You and CMC Spreadbet Plc not Digital Look Ltd will be counterparties to each transaction.
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