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Spread Betting

What is spread betting?

Answer ...

Financial spread betting is a leveraged tool that gives investors the opportunity to trade the markets without taking physical ownership of the underlying instrument. This means that the trader can speculate on the direction of almost any financial instrument, ranging from shares to currencies, commodities or indices. The degree to which you are correct in your trade dictates how much you win or lose

The really attractive trait of spread betting is that it is tax free* and it enable you to profit from rising as well as falling prices 24 hours a day. The leverage (or gearing) that spread betting offers enables you to large positions against relatively low deposits, magnifying any gains that you make. However, this also magnifies losses so you need to make sure you take full advantage of the risk management tools spread betting companies offer.

Here's a worked example of spread betting in practice for someone that wants to speculate on the movement of an individual share:

Say Tesco is trading in the market at 415.3/415.6p. Your spread betting platform quotes Tesco at 415.1 – 415.8, and you decide to 'buy' £50/point at 415.8, the offer price.

With this bet you will make £50 for every point that the 'sell' (bid) price, currently at 415.1, rises above 415.8. You will lose £50 for every point the bid price falls below 415.8.

If by afternoon trading the price has reached 419.1 – 419.8 you may decide to take your profit and close the bet. You do this by ‘selling’ £50/point at 419.1 (the bid price) and you’ll have made (419.1 – 415.8) x £50 = £165 tax free.

However, if the price moved against you, you could have lost more than your
initial deposit.

Tradefair Intro to Spread Betting

There is no limit to how much you can make through spread betting. As with other forms of trading, many people have become wealthy through trading the markets whilst others have lost it all.

The video to the right by Tradefair, one of our recommended spread betting company’s, gives a good visual introduction into spread betting. We help answer some of your other questions with help from Tradefair video tutorials.

*Tax law can be changed or may differ depending on your personal circumstances.

Recommended Trading Resource - Alpha Forecast

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