Spread Betting Guide: Benefits, Best Online Brokers and More
Spread betting is often the most tax-efficient and straightforward way to trade the financial markets.
Spread betting is one of the fastest growing forms of trading, with retail traders taking advantage of its tax benefits, impressive leverage potential and the wide variety of asset classes to trade.
But how does it actually work? Spread betting is a form of derivative trading, so you don’t actually purchase the underlying asset when you make a trade on it. However, you still profit (or lose funds) as you would had you purchased the asset.
This means that common trading strategies can be applied in the exact same way to spread betting – and you still get to take advantage of all the benefits spread betting has to offer.
When you place a spread bet trade, instead of selecting the amount of the asset you’d like to purchase, you select a pounds (or dollars) per point position. This is how much you stand to make or lose per point the market trade moves in your favour (or against you). READ: Trading vs Investing: What’s the Difference? This makes it easy to calculate your profit and you can also work out exactly how much money you’re risking per trade before you place it.
The Benefits
As already mentioned, trading stocks, Forex or commodities via a spread betting platform offers novice traders several distinct benefits, including:
Leverage – This allows you to effectively trade with funds several times your account balance, meaning you can make bigger trades and potentially bigger profits (though your downside will also be increased.)
Tax-Free Earnings – Profits generated from spread betting are completely tax-free in many countries, including the UK.
Limited Risk – Many spread betting brokers allow you to utilise a stop loss, which effectively limits how much money you can lose from a single trade.
Simplicity – Spread betting trading is targeted at beginners, so the mechanics are simple and easy to understand.
Profit in a Falling Market – With spread betting, you can take “short” positions and profit when the value of an asset (or an entire index, such as the FTSE 100) falls.
Abundance of Assets to Trade – Some spread betting brokers give you access to hundreds of markets across all the main asset classes, including shares, currencies, commodities, bonds, and indices.
Picking the Right Broker
With so many online brokers and trading platforms operating in today’s saturated retail trading market, finding the right one for you can be a challenge. Here are a few things to look out for when picking a broker:
Regulation – You should only ever trade with a broker that is regulated by a respected financial regulator, such as the Financial Conduct Authority (FCA). This ensures your funds are protected and means the broker has to act in your interests.
Low Fees – High trading fees can chip away at your earnings, so it is important to pick a broker with low fees (tight spreads) so you can maximise your earnings.
Powerful Platform – Your broker’s platform is your gateway to the markets. A powerful, responsive platform can help you execute your strategy and make successful trades.
Variety of Assets to Trade – Having access to more assets to trade means you have more opportunities to make money, and can build a diversified portfolio (if you decide to implement a longer-term investing strategy.)
