Why Should I Use a Spread Betting Account?

Spread betting is a popular type of derivative that traders use for many different types of assets. Like CFDs, you don’t actually own the underlying asset, but a spread bet will track the price of the underlying asset, meaning you can still profit from movements in the price. 

What Is Spread Betting?

With spread betting, you're making a bet on the direction of the price, and you can easily open both long and short positions. If you're correct, you will make a profit, and if you're wrong you'll lose money. The profit or loss depends on your position size (typically measured in lots), and how far the price moves.

Spread betting is most commonly used for forex trading, but it can also be used on other assets such as commodities and equities, depending on what your broker offers. 

The reason spread betting is popular is because it offers access to leverage through the use of a margin account, meaning you don’t need to tie up all your capital with the broker. You just need to keep enough in your account to cover the margin. In the UK, it can also be more tax efficient compared to other derivatives, like CFDs.

The spread is actually the difference between the ask and bid price. You buy at the bid and sell at the ask with the difference between the two being the spread. The spread is the amount you pay the broker, and this is the fee for opening and closing the trade.

Since the broker typically makes money through the spread, it’s uncommon for there to be commission which means it’s relatively cheap, and alongside a margin account, it also has low capital requirements.

Another big attraction for spread betting are the regulations. Because in the UK it comes under gambling regulations which means you don’t need to pay stamp duty or capital gains tax, all the more profit for you to keep. 

Tight spreads across many of the highly liquid assets means spread betting is also suitable for intra-day trading with low entry costs. 

If you're in the UK, spread betting can be a great way to begin live trading in the markets:

• Low cost
• Tax efficient
• Ease of access as many brokers offer spread betting accounts
• Easy to understand