So What Is Spread Betting?
It's a tax-free*, commission-free alternative to trading stocks and markets.
* Tax laws can change from time to time and may differ if you live outside of the UK and Ireland.
So What Is Spread Betting?
Mostly it’s like buying and selling shares:
- You can profit from a change in the price of shares or ther financial instruments, such as commodoties or currencies.
- How much you win or lose depends on how much the price goes up or down.
It’s also a bit like betting on sports:
- In football you can bet on a team winning or losing. In spread betting, unlike regular investing, you can bet on a share price to go up or down.
So What Is Spread Betting?
You are placing a bet rather than buying a share, which means:
- It is treated like a bet by the UK and Irish tax authorities so it is tax free!*
- There is no stockbroker and no stock broking commissions or account fees.
*Tax laws can change from time to time and may differ if you live outside of the UK or Ireland.
What can you trade?
Spread betting lets you trade a wide variety of financial instruments:
- Indices like the FTSE 100 and Dow Jones 30
- Stocks and shares like Vodafone or Ryanair
- Commodities like Gold and Oil
- Currencies
How Much Does It Cost?
- A spread bet always has two prices - the ASK price (that you can buy at) and the BID price (that you can sell at). The difference between the two prices is called the spread.
- In the example below the spread is 6.03 - 6.00 = 3 cents.
- With spread betting there is no commission and no account charges
- the only "fee" you pay is the spread. - How much money you make depends on what happens to the price.
A Simple Example
The price for Ryanair is currently €6.00 - €6.03
You decide Ryanair is likely to rise, so you buy at 6.03 for €5 a point
As it happens Ryanair goes up. You decide Ryanair is not likely to rise any more when it reaches €6.50 - €6.53
You close your bet by selling at €6.50
This means that for every cent the share rises above €6.03 you win €5. However for every cent the share falls below €6.03 you lose €5
The profit from your bet is:
| Your stake | €6.50 | |
| Less the price you bought at | - | €6.03 |
| The price you sold at | x €5 | |
| €235 |
The Benefits Of Spread Betting
- Spread bets are often cheaper than buying ordinary shares and help you to avoid tax. However they are more suitable for short-term trading than long-term investing.
- Spread bets let you trade a wide variety of instruments including shares, indices, currencies, oil and gold, in the currency of your choice.
- Spread bets let you make profit when markets are falling as well as when they are rising.
- You can learn to spread bet using paddypowertrader’s demo account before risking any of your own money.
Spread betting carries a high level of risk and you can lose more than your intial deposit and stake. You should only speculate with money you can afford to lose.
Congratulations!
You have now completed tutorial one.
In tutorial two we'll be looking at the effects of gearing and seeing how to place a trade.
