Spread betting is, as the name suggests, a form of Betting where you essentially wager against a broker on your prediction of price movements.
While UK tax law considers financial spread betting as gambling, the industry is regulated by the Financial Conduct Authority as a trading activity. Many individuals view themselves as professional traders rather than gamblers, despite the similarity to betting on sports or games of chance.
Spread Betting Explained
Spread betting is a financial trading product in the UK that allows traders to speculate on the direction of financial markets tax-free without owning the underlying asset. Traders can bet on a range of financial instruments, including indices, commodities, forex, stocks, and bonds. Pretty much anything that rises and falls in value.
This leveraged product enables traders to open a position with a fraction of the full value of the trade, maximising their profits compared to traditional investing where they have to purchase the full asset or equity. Traders can buy (long) and sell (short) through spread betting, allowing them to take advantage of falling and rising markets.
When spread betting, two prices are quoted – the bid price, which is the price to buy, and the ask price, which is the price to sell. The difference between the two is known as the spread which is a small fee taken by the broker every time a position is opened. Spread fees vary depending on the instrument traded.
Traders can decide how much to bet per point of movement, with profits increasing with each point the market moves in their favour. The profit is calculated as the difference between the opening and closing price, multiplied by the value of the spread bet.
For example, on a 1:1 trade, a trader speculates that the Great British Pound will rise in value against the US Dollar by 100 points (pips) and stakes £1 per point. If the price goes in the trader’s favour and hits the desired price target, the trader would earn a profit of £100. on the flip side, if the price goes against the trader they will lose £100.
It is important to bear in mind that losses can be magnified with leverage, and traders should have a solid risk management plan in place before placing any spread bets. 80% of retail investors on average lose money when spread betting.
Spread betting is primarily designed for short-term trading rather than long-term investing due to its leverage and overnight financing fees. The accumulation of overnight financing fees can erode profits over time, discouraging long-term positions.
Popular Spread Betting Brokers
There are 26 FCA regulated brokers licenced to offer spread betting in the UK. We have narrowed this list down to the top 10 brokerage firms that offer spread betting accounts.
CMC Markets
CMC Markets are one of the most popular and best know spread betting brokers in the UK. They have been in business for over 30 years and offer over 10,000 financial instruments.
IG
IG Group is another spread betting giant that was founded in 1974. IG has a range of over 15000 markets, including shares, indices, forex, commodities, cryptocurrencies, bonds and many more.
City Index
City Index was founded in 1983 and started trading in March 1984 offering spread betting. City Index offer 6,000+ instruments.
Spreadex
Formed in 1999 by a former City trader, Spreadex is another longest-standing spread betting company.
Pepperstone
Pepperstone, established in 2010, is a Melbourne-based broker specialising in providing markets access to financial instruments, including Forex, index, share, commodities, cryptocurrencies, CFDs and spread betting.
Markets.com
Markets.com, established in 2008, offers investors access to forex trading in addition to a wide range of CFDs and spread betting.
FXCM
FXCM, founded in 1999, is a retail foreign exchange broker for trading on the foreign exchange market. FXCM offers CFD trading as well as spread betting for UK residents.
FXPro
FXPro is another foreign exchange broker for trading on the foreign exchange market. Founded in 2006, FXPro offers CFD trading and spread betting for UK residents.
AvaTrade
Founded in 2006, AvaTrade is a CFDs and forex broker that also offers spread betting to UK residents.
Capital.com
Capital.com was founded in 2016 and offers CFD trading as well as spread betting to UK residents. The broker has a range of financial instruments including shares, forex, commodities and indices.
Spread Betting FAQs
Why is it called Spread Betting?
Spread betting is called so because traders place bets on the difference between the buying and selling prices of a financial instrument, which is known as the spread. The profit or loss is calculated based on this spread, hence the name “spread betting”.
Is Spread Betting Really Tax-Free?
Yes, in the UK and Ireland, spread betting is tax-free, which means traders do not have to pay any capital gains tax or stamp duty on profits earned through spread betting.
Is Spread Betting OK for a Complete Novice?
Spread betting can be risky and complex, so it is essential for novice traders to gain knowledge and experience before starting. However, some spread betting providers offer demo accounts and educational resources to help beginners understand the market and trading strategies.
Is Spread Betting Gambling?
Spread betting can be considered a form of gambling as traders speculate on the future movement of financial markets, and the outcome is uncertain. However, spread betting also involves technical analysis, risk management, and market research, making it more of a financial product than traditional gambling.
Is Spread Betting better than CFD trading?
Both spread betting and CFD trading offer leveraged trading and the ability to bet on rising and falling markets. The choice between the two depends on the trader’s preferences, experience, and the market they want to trade. However, spread betting is tax-free in the UK and Ireland, while CFD trading may be subject to capital gains tax and stamp duty.
