Spread Betting Explained

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A lot of people struggle with the concept of spread betting, but this is usually because they’ve been misinformed, ill-guided, or presented with dire warnings never to try it. The reality is much simpler than you’ve probably been led to believe, with the only real difference between spread betting and most other forms of investing being that you won’t own the underlying asset.

Training in spread betting isn’t exactly formal as such but there are a handful of sites which host great resources to teach you right from the start; such as Sharp Trader.

Instead, traders make a bet as to which way the value of a certain investment instrument will move. Bets are made per point, so that for every point of movement, your profit grows or your losses increase.

High risk and fast paced spread betting may be, but straightforward and simple too. Let’s look at how it works in a little more depth.

How Spread Betting Works

The ‘spread’ in spread betting is the difference between the selling price and the purchase price. If you think that the value of an asset is going to increase, you buy, also known as ‘going long’. If you believe that the reverse is more likely, you sell, also known as ‘going short’.

For every point that the asset moves in one direction or the other, you win or lose the amount you’ve staked. This means that if you bought at £5 per point, and the market rose by three points, you would have earned £15. If it dropped by three points, you would have lost this sum.

But why should you give spread betting a try? Here are five reasons that we think will persuade you.

Five Reasons to Give Spread Betting a Go

  1. Spread betting is tax free

One of spread betting’s main lures is that it’s classed as gambling and therefore tax free. This means that any profits you make are yours entirely.

  1. Spread betting margins are small

Spread betting enjoys the added benefit of being a leveraged product. This means that you don’t have to put down the full value of the position before you can trade, and can thus make your capital go further.

  1. Spread betting lets you go short

One trait that a lot of spread betters like to take advantage of is the ability to go short as well as long. This means that unlike traditional investments, traders can profit from any market movement – up or down.

  1. Spread betting gives you access to thousands of markets

You might also like to know that spread betting provides investors with access to a phenomenal range of markets, from forex to shares to commodities. This means that even instruments that you would never usually be able to access can be invested in, as you don’t own the actual underlying asset.

  1. Spread betting is open around the clock

Lastly, a lot of traders enjoy the flexibility that spread betting offers them. With around the clock dealing on most markets, it can be fit around conflicting commitments, such as your nine to five employment, so that you can trade at whatever time is best for you.

If you’re on the lookout for your next investment opportunity, could spread betting be the solution?

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