What Is Spread Betting? A Complete Guide

Today, the savvy investor has a lot more options at their disposal than just putting their money into stocks and shares and hoping for a long-term yield. Thanks to improvements in trading technologies and lightning-fast communication provided by the internet. Investors are increasingly turning to new financial instruments such as CFDs (contracts for difference), foreign exchange (or Forex), and spread betting.

What Is Spread Betting? Its Relevance in Today’s Financial Markets

Spread betting

Techniques such as Point spread betting provide a quick return and a lot more action, making them attractive to traders looking for a fast-moving option to potentially yield higher returns more quickly than the stock market.

Spread Betting as a Financial Instrument

Financial spread betting can be accessed by providers of trading platforms, such as CMC. These platforms give traders immediate access to the market from a variety of devices, including PCs, mobile phones, and tablets.

Like other speculative financial instruments, Point spread betting is not based on actual ownership of the product or asset. Rather, it’s a kind of bet on the movement of a share price based on the concept of spread betting as used by bookmakers in sports.

How Does Spread Betting Work?

Spread betting

At its core, Betting the spread lets traders speculate on whether a market will rise or fall. The roots lie in gambling on sports like football, where a savvy gambler can place a bet not on whether a certain side will win the game, but on the difference between the scores at the end of the match.

Take, for example, a lopsided match between a top-flight Premier League football club and a team of underdog Conference players. There’s very little chance that the Premier League team will lose. But there’s still a bit to be made on the uncertainty of the scores. A bookmaker can advertise a spread of 4 points – that is, the Premier League team will win by a margin of 4 goals.

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A gambler can wager that the goal margin will be higher or lower than this. If they bet that the margin is lower, it is called “taking the points”. And they’ll win the bet if the goal difference between the teams is lower than the spread – conversely, the gambler loses if the goal difference is higher. On the other hand, if they bet that the margin will be higher, this is “giving the points”: the gambler wins if the goal difference is higher than the spread that the bookmaker predicted.

Financial spread betting is very similar, except that instead of betting on the winner or loser of a sports match, traders bet on how far securities such as stocks will rise or fall. Unlike purchasing stocks in the traditional manner, you can bet as much as you like on the movement of the stock.

Depending on how much you place in the spread bet – the “stake per point” – you could gain hundreds of pounds based on a few penny’s worths of movement.

Why Use Spread Betting?

Trading Strategy

One major advantage of SB, compared to other financial instruments, is that in the UK (and some other countries in Europe). Betting the spread isn’t subject to capital gains tax or stamp tax. Because spread betting is classified as gambling rather than investing, it offers a tax-free alternative to similar financial instruments like futures or contracts for difference.

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