Why Spread Bet

Spread betting provides particular features that differentiate it from other forms of trading, which is why this trading style has found a foothold among some traders. Here are some of the potential benefits of spread betting.

• Trading with Leverage
• Ability to go Short or Long on trades
• Profit without paying tax or stamp duty
• Trade a wide range of markets
• Out-of-hours Trading

Spread betting is conducted with leverage which means you only need to put down a fraction of the total cost of the trade you wish to make. This enables you to control a larger position with a small initial deposit, while also allowing you to start trading with relatively smaller capital. Experienced traders may even control multiple positions at the same time using leverage with an aim for greater capital efficiency.

However, note that leverage will amplify both gains and losses; this is because your spread bet will be calculated based on the full value of your position and not your deposit. It's important to trade with proper risk management strategies in place. You should also carefully consider how much funds you can afford to risk.

Unlike a conventional buy-and-hold strategy which typically generates profit only when the market goes up, spread betting allows you to potentially profit whether the market goes up or down.

That’s because with spread betting you can take both long and short positions, according to your view of which way the market may go. If you expect prices may go up, you may open a long position (buy). If you expect prices may go down, you may open a short position (sell).

If markets do indeed move according as you predicted, your trade may result in a profit. However, if prices move against your prediction, your trade will incur a loss.

Being able to trade both long and short positions gives you greater flexibility and access to more trading opportunities. However, it is important to consider that trading spread betting carries significant risk too.

In the U.K., spread betting is currently not subject to capital gains tax. You also need not pay any stamp duties on spread bets. This means that any profits earned from your spread bets are not subject to taxation, subject to your personal circumstances.

While there are no tax deductions required, it’s important to note that spread betting will incur fees and charges – such as the spread charged on your trade. Other fees or charges may also apply – be sure to check with your broker to understand the full fee schedule before training.

(Tax treatment depends on individual circumstances and may change. You should seek independent tax advice if unsure.)

Vantage offers tight spreads and low fees to help control trading costs.

Many investors choose spread betting because it provides access to a wide range of markets and instruments, allowing exposure to price action without direct ownership of assets.

Forex

One of the world’s largest and most liquid financial markets, forex allows you to speculate on the price movements in currency pairs which naturally occurs as different currencies strengthen and weaken relative to each other. Choose from a wide selection of currencies to trade, ranging from popular pairs such as major pairs like USD/EUR or USD/JYP to minor pairs (GBP/AUD, EUR/CHF etc), and exotics featuring currencies of emerging economies such as the Brazilian real.

Spread betting on forex markets takes advantage of the sector’s dynamic price fluctuations to discover trading opportunities from short- to long-term timeframes.

Indices

Indices provide reference to the status of the stock market in the economies they benchmark by tracking the performance of a collection of exchange-listed stocks. Component stocks are chosen based on strict criteria such as market capitalisation and sector, and may be added or removed as the criteria evolve.

Some widely followed indices include the S&P 500, often taken as a barometer of the American stock market, and the NASDAQ, generally regarded as representative of the tech sector.

By trading relevant indices, spread betting offers a way for traders to speculate on the economic performance of countries, regions or industries.

Shares and ETFs

Publicly listed companies issue shares to the public to raise capital, with each share representing an ownership stake in the company. As shares are freely traded on stock exchanges, their share prices rise and fall in tandem with demand levels.

There is a wide variety of shares available for trading, ranging from blue-chip stocks belonging to global leaders such as Apple, Meta (formerly Facebook) and Nvidia, to micro-cap stocks issued by startups.

Spread betting allows traders to gain exposure to share prices without ownership of underlying stocks. This may lower the capital required to speculate on high-priced shares, but also introduces the risks associated with leverage.

For those who prefer to diversify their risk by spreading exposure across several stocks, instead of just a handful, ETFs might be a possible option. These are funds made up of baskets of different shares, and may be composed according to sector, geographical region, market-capitalisation, etc.

Commodities

Commodities are goods such as energy, metals, raw materials and agricultural products vital to the proper functioning of the global economic system. As such, the commodities markets are often liquid and actively traded.

Trading commodities using Spread Betting allow retail investors to bypass physical ownership requirements, speculating on pure price action instead. Another potential benefit is the large variety of commodities available, including gold, oil & gas, coffee beans, copper, livestock, etc, which can offer traders potential hedging opportunities based on the trading cycles of the respective commodities with potentially lower correlation to other markets.

Bonds

Government-issued or corporate-issued debt instruments are what may be found in the bonds market, where holders can freely trade their holdings. The opportunity comes with interest rate changes; as interest rates rise, older bonds tend to fall in price to match the yield of newer bonds. When interest rates fall, older bonds tend to increase in value.

Traders who follow interest rate trends may use spread betting to speculate on fluctuations in the bond market. They can do so without having to purchase or own bonds themselves.

Stock exchanges have fixed opening hours, trading 5 days a week during business hours, excluding major holidays.

However, with Spread betting, investors may benefit from round-the-clock dealing on selected markets. This means that you can open or close your positions at a time convenient to you, instead of having to observe trading hours.

Be aware that markets can move dramatically overnight due to unexpected reasons, so it’s important to implement risk management strategies.

Spread betting is a leveraged product and carries a high level of risk to your capital as prices may move rapidly against you. You could lose more than your initial investment and in that situation would be required to make further payments. As these products may not be suitable for all clients, please understand the risks sufficiently and seek independent advice, where necessary.