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The Benefits of Spread Betting

Spread betting has many advantages over traditional methods of investing such as share trading.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Margin trading

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.

Share betting v share trading – a cost comparison

Compare the cost of buying 10,000 shares compared to the equivalent spread bet of £100 per point.

Share Trading

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

Spread Betting

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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