What is it?

Financial spread betting is a type of investment trading that does not require you to own the underlying asset you are trading with.

It is also a leveraged investment, which means you only need to put down a small percentage of the amount you want to trade with to open your position.

How does it work?

You bet on whether you think the price of a market will go up or go down.

  • If you think the price will go up, you buy

  • If you think the price will go down, you sell

If you are wrong, you lose, and if you win, you could make a profit.

To make a profit, the price movement needs to be bigger than the value of the spread.

What is the spread?

Each market has a different price when you buy or sell, the difference between the two figures is the spread.

For example, a buy price of 6801 and a sell price of 6800 has a one point spread, meaning the market has to move by more than this in your favour for you make a profit.

Multiply every point difference by your stake to work out your profit or loss.

Look for a broker that offers the smallest spread across the market you want to bet on.

Profit and loss explained

To calculate your profit or loss you have to look at the price you opened your position with; either the buy or sell price.

  • The more the market moves in your chosen direction, the more profit you could make

  • If the market moves the other way, the bigger the movement the bigger the loss

The price movement has to exceed the size of the spread before you can make a profit.

For example, if the FTSE sell/buy price was 6800/6801 and you buy, here are some possible outcomes:

Buy priceSell pricePoint differenceOutcome
68016802+1Profit
680168010Break even
68016800-1Loss

And if you sell instead, here are the possible outcomes:

Sell priceBuy pricePoint differenceOutcome
68006801+1Loss
680068000Break even
68006799-1Profit

What are the costs?

The size of the spread will be the cost of trading in a market, the bigger the spread the higher the cost of spread betting.

Some brokers may also charge:

  • Withdrawal fees

  • Credit card fees

  • Inactivity fees

What is the margin?

It is the amount of money you must have in your spread betting account before you can open your position.

This is usually a percentage of your position's value, for example:

  • You want to put a 20 stake down on the FTSE 100, with a buy price of 6801

  • This position would be worth 136,020 (20 x 6801)

  • The margin will be a percentage of the position, such as 1%

  • This means you will need 1,360.20 available in your account to make a 20 stake

The margin acts as a deposit, so if the market goes against you there will be a set amount to help settle any losses. Your losses could still exceed your deposits.

Types of margin

There are two types of margin:

  • Initial (deposit) margin: the minimum amount of money you need in your account before you can open your position, usually a percentage between 0.5% and 30%.

  • Variation margin: your broker could ask for more money if your losses are close to exceeding your margin.

What can you bet on?

You can open a bet on several markets, including:

  • Indices: Exchanges like the FTSE 100, DAX 30 and US 30

  • Forex: Currency pairs like euro/US dollar and British pound/US dollar

  • Stocks: Shares in companies like Barclays, BP, Microsoft and Vodafone

  • Commodities: Metals like gold and silver

Spread betting FAQs

Q

What is a spread?

A

You have a buy and sell price, the difference between the two figures is known as the spread.

Q

Is financial spread betting regulated?

A

Yes, all UK based spread betting companies are regulated by the Financial Conduct Authority.

Q

Is spread betting gambling?

A

No, spread betting is a form of investment trading. Although you bet on how the markets will perform, it is not legally gambling.