The charge that gives spread betting its name is effectively the ‘price’ you pay to open and close a bet. It comes from your provider wrapping its own spread around the underlying market price.
Remember to consider additional costs beyond your initial outlay when you spread bet
Because you ‘buy’ at the higher price (the offer) and ‘sell’ at the lower price (the bid), you will always incur a charge equivalent to the size of the spread, multiplied by the size of your bet (below).
For your position to start making a profit, the underlying market will need to move in your favour a distance greater than the spread.
The bet size is the amount of money you stake per unit of movement in the underlying market, which determines how much you pay on the spread.
As long as you have sufficient margin to cover your position, the size of your bet is up to you, subject to the minimum required by your provider for that particular market.
A key factor in the affordability of spread betting, a margin is the amount of money you need as a deposit in your account to open and maintain your positions. Different providers will require slightly different degrees of margin, and rates tend to vary across markets, according to the underlying conditions.
While you have a position open, your margin payment is assigned to it and can’t be used for anything else. However, this money is released as soon as you close the position.
Spread bets may come with nominal expiry dates and times in the distant future, however most are designed to be used for short-term positions. If you don’t close such ‘daily bets’ by a certain cut-off time at the end of the day (typically 10pm UK time), many providers will charge you to hold them overnight.
This is because they are effectively lending you the full value of your position (apart from the margin payment), and thus charging you interest on that amount. They may also include an administration fee.
For longer-term positions (eg quarterly bets), there are no overnight funding charges, but instead you’ll typically find a wider dealing spread.
Currency conversion fees
When you place a spread bet, it will be denominated in a particular currency. More often than not this will be in pounds – eg £10 per point – which will invariably also be the base currency of your account. If, however, you are able to place a bet in a currency other than your base, you may be required to pay an associated conversion fee.
For instance, many spread betting providers give you the option of betting on US shares in US dollars per point. In these cases, before your account can be credited or debited with any profit or loss, the dollar figure needs to be converted back into pounds, which may incur a fee.
In addition to the above, you may find that your spread betting activity (or lack of it) is subject to a number of other charges. For instance:
- Controlled risk premiums – You may need to pay a little extra in return for eliminating the risk of slippage
- Feature subscriptions – Your provider might also pass on the cost of providing certain platform features (eg advanced charting packages, live prices), although they could be willing to provide a rebate for more valuable customers
- Inactivity fees – If you stop spread betting, your provider may seek to cover its ongoing administrative costs by applying an inactivity fee to your account
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