Spread Trading Solutions

Financial Spread Betting is a form of investment which does not limit an investor to a simple, fixed 'win' or 'lose' scenario when speculating on the movement of markets or indices.

Instead, an investor decides whether to BUY or SELL a market ie spread betting on it to move up or down respectively.

For every point that the market moves, in the direction that the trader forecast, a profit is calculated by multiplying the stake per point and the number of points by which the market has moved.

However, if the asset had moved against the investor then a loss would be generated by multiplying the stake per point by the number of points by which the asset had moved in the wrong direction.

If we consider a simplified example this system becomes clearer.


FTSE Spread Betting Example

Financial spread betting is offered by a host of spread betting companies like FinancialSpreads.com and GFT and on a wide range of markets.

For this example, let's assume that you have gone onto a spread betting website, such as Financial Spreads, and have seen their online quote for the FTSE 100 Index Rolling Daily Market as 5050 - 5051.

If you were to buy this index at 5051, ie bet on the FTSE 100 to go up, then, if the market moves up to 5070 ' 5071 you could close you bet by selling at 5070.

If you were risking a stake of £2 per point then your profit = (5070 ' 5051) x stake per point = 19 points x £2 per point = £38.

On the other hand, if you had bought the FTSE at 5051 but instead the index had decreased in value to 5040 - 5041 then you may have wanted to close your bet and limit any further losses. You could do so by selling at 5040.

So with the same risk or stake of £2 per point you loss = (5040 - 5051) x stake per point = -9 points x £2 per point = -£18.


Spread Betting Key Points

As no stock is actually exchanged, spread bets are not susceptible to stamp duty, likewise UK spread betting does not incur capital gains tax*

Spread betting usually offers a large variety of markets on which to trade such as indices, foreign exchange, commodities and equities.

Spread betting is a leveraged product. This amplifies your profits on winning trades. However, it also means that you can lose more than your initial investment.

Before you start spread betting note that it carries a high level of risk to your funds. It may not suit all investors. Only speculate with funds that you can afford to lose. Ensure you understand the risks and seek independent financial advice if and when necessary.

*Based on current UK Tax law. If you pay tax in a jurisdiction other than the UK then this may be different.