Financial spread betting is something that is commonly used to speculate which direction the share price of a stock/commodity/index will take without actually having to own or purchase any of the shares. It’s now becoming one of the UK’s most popular methods of trading. That’s hardly surprising given that any profits are completely free from stamp duty and Capital Gains and Income Tax in the UK.
Essentially, a spread bet is placed between the client and spread betting company where the bet is based on an underlying financial instrument of choice. Actual ownership of that financial instrument never takes place.
One of the principle reasons for using financial spread betting is to profit from more obscure markets than stocks and shares, such as bonds, foreign exchange, and commodities such as crude oil and gold, be they on the UK or international markets. Financial spread betting is a great way for smaller investors to trade without committing to a large financial investment.
Unlike bets in bookmakers, there are no fixed odds in spread betting, but instead a stake is betted on the direction of the market. If the trader bets that the price will rise, this is called ‘going long’, and if the better predicts the price will fall, this is called ‘going short’. Instead of direct ownership of equities in a company, the trader is betting on which direction he thinks the price will go. Any profit or loss made is determined by the difference in buy and sell (bid and offer) prices.