Spread betting explained

Spread betting explained

Spread betting is essentially betting on an outcome. It is used for events such as sports, the stock market, house prices, the FTSE 100 etc. However unlike normal betting when you either win or lose, spread betting allows you to win and lose small and big amounts.

Spread betting sometimes receives a negative stigma due to the fact a spread betting account is classed as gambling. It also doesn’t help that spread betting accounts allow you to bet on sports. However you can use just the same strategies you would on a brokerage account with a spread betting account, this greatly reducing the gambling element.

Advantages of using a spread betting account

• You do not have to pay tax on your winnings as spread betting is classed as gambling (UK)
• You do not have to pay stamp duty (0.5%, UK)
• Spread betting accounts give you greater leverage on your accounts, sometimes up to 10-1!
• A 10-1 leverage means that you can start with a small deposit and still make large profits.
• You can use stop losses that work instantaneously, unlike in a brokerage account where they can take a while to kick in.
• You do not actually own the stock, which means you are not linked to the exchange, which means you can trade after hours (great for people who get annoyed with fluctuating overnight prices)

Disadvantages of using a spread betting account

• overnight charges are occurred if you keep bets in longer than one day (often only a vary small % of your capital invested)
• you pay a small fee when entering a stock which is the spread (the difference between the bid and ask price), however on heavily traded stocks this spread is usually very small.
• You do not own the stock therefore you do not receive any dividends.

As long as you apply your stock market strategies to a spread betting account, it is not gambling. The spread betting account is in fact a better trading product than the brokerage account if you are a day or swing trader, as the stop losses are 100% guaranteed and you are not looking for dividend income anyway.

For a spread betting account which has very tight spreads and that greatly reduces the costs of overnight charges I recommend .