Spread betting is a tax free cost effective alternative to traditional share trading. It allows you to speculate on the movement of stocks and shares without using a stockbroker, therefore you do not have to pay commission or fees.

Spread betting firms like Capital Spreads make a spread around the live, underlying market price and you can bet on whether this market will rise or fall.

Betting on the movement of stocks and shares allows spreadbetting customers the opportunity to generate substantial profits on both rising and falling markets. Spread betting therefore offers all the advantages of speculating on the stock markets and much more.

How does it work?

Spread betting is an efficient alternative to traditional trading in the financial markets.

Not only is it more versatile, by allowing you to either go long (buy) or short (sell) a share, it is extremely cost effective, as you do not pay commission or fees. If you are a UK resident, your profits are Tax Free (at time of writing). You can also use Spread Betting as a hedging tool, to protect investments in an existing share portfolio.

The “spread” in the phrase Spread Betting refers to the Sell (Bid) and Buy (Offer) price quoted by a spread betting company. This price is calculated around the live (or the estimated future) market price of a financial product. For example, if the Daily FTSE is trading at 4729 our quote might be 4727-4730.

When you spread bet, you do not buy the stock or share but instead you make a bet as to which way you think the market or share-price will move. You can bet per penny or point movement – the amount you wish to bet is known as the “stake”, and can be as little as £1/€1/$1 per point or penny movement.

This diagram above shows how your profit is calculated depending on whether you buy or sell the market, assuming your stake is £1.

At Capital Spreads , only small deposits are required to open a new position (as little as £10-£40 for a £1 bet depending on the market concerned).  Once you have chosen the market on which you wish to bet, you can then bet the stake of your choice, which will represent your profit or loss per point movement in that market (each market has its own individual maximum allowable stake).

You can then bet £1/ $1 / €1 per point/tick/cent on the movement of spread prices that they quote. You can choose to bet that the market will rise, or alternatively, you can bet that it will fall. If you are right, you will make a profit of your stake multiplied by each point that the market moves in your favour. If you are wrong you will make a loss of your stake multiplied by each point that the market moves against you.

For this reason you must be aware that your losses can increase dramatically if the markets move substantially in the opposite direction to your bet (i.e. if you make an Up Bet in the FTSE 100 and instead of going up it goes down).  All spread betting profits are recognised as the winnings of a bet, and are therefore free of Capital Gains and Income Tax in the UK.

Click here to read more about Capital Spreads