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What is spread betting, and how does it work?

23/03/2021

While it’s tax-free and can potentially reap huge rewards, as the name suggests, spread betting is a significant gamble. Done well, an investor can make huge profits incredibly quickly. Done badly, it can lead to enormous losses. But what exactly is spread betting, and how does it work? 

 

What is spread betting? 

In its simplest terms, spread betting involves speculating on whether the price of an asset will fall or rise, using the prices that their broker offers as a guide. Unlike more traditional forms of investing, there is no buying and selling of assets involved: instead, you use your market knowledge to predict an asset’s price movements, and back up your predictions with cash. 

Spread betting can cover a number of different asset classes, including shares, commodities, indices, forex, cryptocurrencies and more. So, how does it work?

 

How does spread betting work?

In spread betting, a broker will quote two different prices: a buying price (bid price) and a selling price (ask price) for any given asset – similar to trading on the stock market. The spread is the term used to describe the difference between the two prices – and with the broker taking a share of the spread, there is no commission to be paid. 

The investor buys “points” in an asset, predicting whether they will rise or fall, and gaining or losing money for every point of movement in the given direction. 

 

Is spread betting right for me?

With a broad spread of asset classes, its tax-free nature and the possibility to make large amounts of money very quickly, it is easy to see why spread betting appeals. Conversely, it is also possible to lose a lot of money, which is why many brokers use margins to manage their personal risk. However, with the FCA revealing that around 82% of spread betters lose money, some may find that a more conventional investment suits them better.

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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