Why do people spread bet?

Spread betting has a number of distinct advantages over traditional trading.

It’s tax free

When you trade financial assets in the traditional way, you normally have to pay capital gains tax (CGT) on any profits you make.

Spread betting is classed as gambling, which is exempt from CGT

CGT is required when you sell something for more than the price at which you bought it. You can end up paying as much as 28% on your profits, depending on your income and the size of the gain.

However, because spread betting is classed as gambling – and gambling is completely exempt from CGT – you won’t have to pay any.

The same goes for stamp duty, which is a tax you typically face when purchasing shares. As a spread bettor, you never physically buy any shares, so you don’t need to pay this.

Remember, tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

You don’t pay commission

Unlike when you buy and sell physical financial assets through a broker, you don’t need to pay commission on any transactions when spread betting. That’s because any costs or charges are typically covered in the spread.

Paying the spread is usually cheaper than paying commission on a similar transaction, particularly in smaller deal sizes. That’s because brokers often charge a minimum commission fee for every transaction.

Your money can go further

Spread betting is known as a leveraged product. 

In a nutshell, leverage lets you open a relatively large bet with a much smaller deposit. For example, if you were to deal on the equivalent of £1000 worth of Barclays shares you might only need £50 deposit to open your position.

How does leverage work? | Why do people spread bet | learn.spreadbetting

However, it’s important to remember that any profits or losses will be based on the full size of your bet, which means they could far outweigh the size of your initial deposit. So leverage is a spread betting benefit, but also its biggest risk.

You can profit from falling markets

In traditional forms of trading, you usually buy an asset in the expectation its price will rise and you can then sell it for a profit. Therefore you tend only to buy assets you think will go up in value. 

When spread betting you are simply placing a bet on the direction in which an asset’s price will move – so you can take a view on falling markets as well as rising ones. This is called going short.

Quick execution on thousands of markets

Spread betting is largely carried out via online dealing platforms. Most of these platforms offer a wide range of global financial markets to bet on, all in one place. So you don’t need to be directed to, say, a stock exchange for shares, or to a commodity exchange to deal commodities. 

You just need to pick a market, decide on a deal size, and you can then place your bet instantly by selecting either ‘buy’ or ‘sell’.

24-hour markets

Most markets have set dealing hours. The FTSE 100, for example, is only open from 8am to 4.30pm in the underlying market.

With 24-hour markets, even if the market you’re betting on is shut, you can still bet

Ordinarily, after it closes for the night, you’d have to wait until the following morning before placing your next bet.

You may, however, find that some spread betting providers allow you to deal round-the-clock on certain markets.

This means that, even if the market you’re betting on is shut, you can still open and close your bets.

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