What Is Spread Betting?
Despite the name, financial spread betting is viewed by many market participants not as ‘betting’, but as a tax-free method of trading the financial markets*. Subsequently, the growth of this type of trading amongst professional traders and retail clients alike has grown exponentially in recent years, to the extent that it is part of many investment portfolios. It remains a risky product, and is frequently used by traders and investors seeking a product with a higher risk/reward profile.
Put simply, spread betting allows you to speculate on whether you think an underlying market (i.e. a share price or commodity) will go up or down. You trade on a ‘per point’ basis, meaning that you invest a stake per point. Let’s say you want to go £25 per point long on gold. For each point that the gold point ticks up, you make £25. For each point it goes down, you lose £25.
This type of trading provides you with a wide variety of markets to trade, and is currently tax free – it is not subject to either CGT or stamp duty*. These features are not available with some other types of trading. Such a method of trading gives investors and traders access to currencies, indices, commodities and shares, allowing you to broaden your horizons beyond the equity markets.
Spread betting gives you the option to trade rolling contracts, meaning you can hold the trade for as long as you want. If the trade moves in the direction you did not expect and you have a running-loss, you can continue to hold the contract if you anticipate that the position will recover.
Spread betting is a fairly recent trading instrument; its popularity increasing steadily amongst investors and traders over the last ten years. However, its history spans back to the 70s; it was Stuart Wheeler who introduced the instrument to the market, when gold that was the main underlying market. As a result of its success at the time, the financial community of London readily adopted it after its introduction. The placing of spread bets is still considered a convenient approach to investment, and is now popular throughout the UK and worldwide.
In the early days, a lack of capital investment and innovation caused the growth of the market to remain fairly idle, despite there being opportunity for growth. It was only financial specialists who made use of this instrument; the public initially deemed it too ‘innovative’ and a lack of relevant technology caused firms to not be able to meet the demand of their perspective customers.
It wasn’t until the emergence of the Internet during the early 2000s that this type of trading really ‘took off’; the benefits of the Internet (i.e. it being a widespread communication infrastructure) meant that firms could reach the common investor easily – and allow them to trade conveniently online.
The UK market continues to grow, as platform innovation continues into the mobile age.
Spread bets are traded on margin, which means that you are only required to have a percentage of the trade in your account prior to executing the trade. For example, if you are looking to place a trade worth £5,000 and the margin requirement offered is 20%, you would only be required to have £1000 in your account in order to place the trade. This frees up funds in your account, allowing you to make other trades so you can leverage your returns. Of course, this brings increased risks as you potential losses are also leveraged. Read on to learn more with the aid of examples.
An example of a simple winning spread betting trade:
* You feel BP will go down
* You place £5 a point on the stock decreasing (i.e. you go short)
* The stock does indeed decrease by 7 points and you choose to close the trade at that point making a profit of £35
An example of a simple losing spread betting trade:
* You feel BP will go down
* You place £5 a point on the stock decreasing (i.e. you go short). The stock increases by 10 points.
* To limit your losses you decide to close the trade, losing £50 allows rolling contracts. Therefore, you can hold a position for as long as you want, providing you meet the margin requirement.
An in-depth winning spread betting trade:
* After reviewing Accendo Markets’ research and studying the charts on the platform, you believe that shares in Vodafone will go from 345.5p a share to 315.5p a share. Therefore, you decide to go short (i.e. you’ll make a profit if the price falls). The current price is 342.5p.
* You call your Accendo Markets trader and ask them to place an order for you.
* You ask them place an order for £10 a point, opening at 345.5 with a contingent stop loss of 355.5 and a contingent limit of 315.5. Note here that you’re not opening the position immediately, but at a ‘better’ price than market – if it gets there. When and if this order is opened (if the price reaches 345.5), a stop and limit order (to close) would be automatically attached to your trade.
* The contingent stop loss and the limit: If the stock reaches either of these points (if your trade is opened), it will automatically exit the trade to either limit your loss or take a profit at your pre-specified levels.
* The stock moves in your favour from 345.5 to 330.5, before moving to 350.5. It fluctuates, but does not hit your stop or limit.
* You continue to hold the trade for a week before it is automatically closed when the stock decreases once again to your limit of 315.5p a share. You make a profit.
* Upon closing the trade at 315.5, the stock has moved 27 points in your favour. Despite the fact the stock has lost value, you correctly anticipated which way it would move in the market meaning you receive a profit of £270 (27 points x £10 a point).
An in-depth losing spread betting trade:
* After doing your research, you believe that shares in BP will go down from 107p a share, to 98p a share.
* You log into your platform to place the order at 107p for £10 per point. You go short (i.e. anticipate a fall in the share price). You put a stop at 115p and a limit at 98p.
* The stop loss and the limit mean that if the stock reaches either of these points, you’ll automatically exit the trade to limit your loss or cap your gain.
* The stock moves against you, rising to 111p.
* Despite holding the stock for another week, the stock continues to rise and eventually hits your stop at 115p.
* In this instance, the stock never moved in your favour and you realised an 8 point loss, which equates to £80 in this case.
Spread Betting Platform
At Accendo Markets, we think we offer the best, easiest to navigate platform in the industry. Not only is this platform easy enough to use for novice traders, it also has the range of tools required by experienced traders. Up-to-date and detailed information is always at your fingertips on a platform that is designed to cater for all your needs.
With this platform, you’ll have access to the following tools:
* Full professional charting package with a host of technical indicators
* Stock-specific information and news
* An RSS feed from Accendo Markets’ analysts, giving you real-time research and trade ideas
* A list of all available markets, from equity markets to commodities. You can find specific information on each stock at the click of your mouse, from margin requirement to guaranteed stop charge
Before placing the trade, the simple user interface will tell you:
* How many contracts/shares you’re purchasing
* What your potential profit or loss is, depending on your stop and limit levels
* The margin required for each position
Once the trade is placed you are given full, detailed information about your trade, showing you:
* The name of the stock
* When you entered the position
* Your entry level
* Live profit and loss position, along with current price
As well as:
* A running total of the profit/loss you may have incurred
* The total free equity you have available to trade
* The total amount of money you have in your account, including profit made or losses incurred from open trades
We hope that the information given has helped educate you on how spread betting works. We hope that it has also put your mind at ease, knowing that if you choose to spread bet with Accendo Markets you will be in the hands of seasoned professionals. Our staff of traders and analysts have years of experience in the markets, giving them a wealth of experience that they are eager for their clients to benefit from. Our primary goal is to help you, the investor, improve your returns.
Please take a few moments to explore the rest of our site. We encourage you to take advantage of our no obligation free research trial and free platform trial. Should you have any questions please do not hesitate to call or email us, we’ll be more than happy to answer any of your questions.
Spread Betting With Accendo Markets
Your Accendo Markets platform will give you the time to tailor and perfect your trades prior to executing them. Using the platform’s charting software, you can follow the trend of your chosen market and time your trades with precision planning.
Spread betting remains commission free. Your Accendo Markets account does not incur hidden charges or fees on any of the profits you make from your trade. Your trading platform will be provided free of charge, and there are no periodic fees for inactivity. Accendo Markets is paid through the bid/offer spread, and a small financing charge is made on positions held overnight. For more information on spreads and financing, visit our spread betting markets page.
At Accendo Markets, we aim to help you make the most from your spread betting.
* Your Trader: You’ll be assigned your own personal trader who you can speak to as much or as little as you would like about the market and your trading strategy. Our traders are here to give you as much assistance as you need, and place your orders if you choose not to trade online.
* Your Trial Platform: Prior to investing your money, we’ll give you access to a free, no obligation trial platform. You can use it to learn how the process works, what it is like to trade in the market and whether your strategy is likely to be successful. It can also help you decide whether you would prefer to trade online or ask your Accendo Markets trader to execute trades on your behalf, albeit on an execution-only basis.
* Your Research and Trade Ideas: As a trading client with Accendo Markets, you’ll receive our research and trade ideas Gold Pass. If you’d like to trial our research at no cost or obligation, we can arrange a 14-day trial for you.
* Your Freedom: At Accendo Markets, we strive to be the best execution-only provider in the market. We’ve won awards, but we’d like to win more!
When it comes to trading with Accendo Markets, you’re in control. Trade online or via your broker. Use our research and trade ideas or formulate your own. It’s up to you, we aim to help you trade how you want to trade.
Trading, with a personal touch.
As an Accendo Markets client, you’ll have access to thousands of global financial markets from commodities and currencies to equities and indices.
*Under current UK tax law. Tax laws may be subject to change.