Spread betting is a fast-moving derivative trading method that gives traders the opportunity to speculate on market performance without the need to own the underlying assets. Traders take a position on the future performance of the market, staking money on the per-point movement in the market price.
Profits increase the more the market moves in the direction predicted. If it moves in the opposite direction, each point leads to more significant losses.
In this guide, we’ll give an introduction to spread betting for beginners, set out some spread betting examples, and spread betting strategies that may prove profitable.
Types of Spread Bet with Examples
Spread betting gives traders a range of options to test their judgement in different markets. Understanding the various types of spread bets is essential for beginners.
Here are some of the key distinctions within spread betting:
Standard vs. Alternate Spread Betting
Generally speaking, there are two main categories of spread betting:
- Standard Spread Betting
Standard spread betting involves taking a position on whether the price of an asset will rise or fall. The stake is applied per point movement of the asset. The bigger the movement in the asset price, the bigger the profit or loss it will generate.
- Alternate Spread Betting
This involves variations of traditional spread betting and often incorporates additional rules and risk management strategies. Alternative spread betting is widely applied to sports betting, alternative financial instruments, and unique market conditions.
Spread Betting Markets
Spread betting can occur on various markets, not just traditional financial instruments. This flexibility is one of the reasons why it’s so popular with traders with a wide range of traders.
Here are some of the most popular markets for spread betting:
Financial Markets
Spread betting is widely used in financial markets. It allows traders to speculate on different assets without owning them. This low financial threshold to entry makes it highly accessible.
- Forex
Traders will place bets on the relative strength or weakness of one currency against another within a currency pair.
- Spread Betting on Stocks
Bets are placed on the price movements of individual stocks, such as Apple, Tesla, Microsoft, or BP, without purchasing the shares themselves.
- Spread Betting on Indices
Movements in the indices such as the FTSE100, S&P 500 or Nasdaq, are popular options for spread betting.
- Spread Betting on Commodities
It’s possible to place spread bets on the price movements of key commodities, such as oil and agricultural products.
- Spread Betting on Gold
Movements in the price of gold are a popular option with spread betters.
- Spread Betting on Futures
Traders place bets on the future price of an asset rather than its current market value.
- Spread Betting on Cryptocurrency
Cryptocurrency is an increasingly popular option for spread betters. Rather than owning digital assets like Bitcoin or Ethereum, bets are placed on changes in their market values.
Sports Spread Betting
Sports spread betting is different to traditional fixed odds-betting. Rather than betting on a simple win/loss outcome, traders can bet on a range of different outcomes, such as goals scored.
- Football Spread Betting
Bets can be placed on different elements within the games, such as goals, corners, and yellow cards, as well as match outcomes.
- Basketball Spread Betting
Spread bets are placed on total points, assists, player performance metrics, and rebounds.
- Cricket Spread Betting
Predict the number of runs, wickets, or other performance metrics within a match.
- Golf Spread Betting
Bets are placed on elements such as total strokes, the number of birdies scored, and player rankings.
- Horse Racing Spread Betting
As well as placing bets on finishing positions, stakes can be placed on distances between competitors, or total race times.
- NFL Spread Betting
NFL spread betting is a popular option in the UK as well as the US, with stakes being placed on points spread and player statistics.
Casino & Roulette Spread Betting
Casino-style spread betting is popular among people looking for alternative spread betting opportunities outside of traditional sports or financial markets. Traders may bet on the outcomes of roulette spins or other games rather than on individual bets.
What To Consider In Spread Betting
Before you begin spread betting, you must understand some key terms and mechanics that influence how bets are made and calculated:
- Leverage
As with other forms of trading, leverage means you can control larger positions with a smaller deposit. While this can offer increased rewards, it can also increase the risk.
- Margin
To keep their trades open, traders must maintain a minimum deposit, known as a margin.
- Minimum Bet Sizes
Brokers will often have a minimum bet size requirement. This ensures that traders are not overleveraging their positions.
- Long-Term Spread
As well as being used for short-term trades, spread betting can also be used for longer-term positions.
Spread Betting Strategies
Spread betting takes a careful and considered approach to achieve success. Here are some of the best spread betting strategies used by successful traders:
- Trend Following
This strategy involves trading in the direction of a market trend. Traders identify trends using technical indicators like moving averages, MACD, or RSI.
- Breakout Trading
Breakout traders enter positions when the price moves beyond a key support or resistance level, which can signal it’s about to make a strong move in one direction.
- Range Trading
Markets often operate within defined price ranges. Range traders aim to profit from price changes in less volatile markets such as some forex pairs.
- News Based Trading
Major financial events, such as economic reports, central bank decisions, or company earnings, can significantly impact some markets. This approach is often used for spread betting on individual stocks, indices, and forex.
- Hedging
Hedging is a strategy where risk is offset by taking opposite positions in different markets. This strategy is often helpful in uncertain markets or during economic downturns.
- Leverage Management
Leverage can amplify potential gains and losses, but it needs to be carefully managed to prevent liquidation.
Spread Betting Tips
As well as having a clear strategy in place, the following five spread betting tips can increase your chances of success:
- Start Small
Begin with a low stake size to manage risk as you gain experience.
- Use Stop-Loss Orders
Setting stop-loss limits can prevent excessive losses if the market moves sharply against you.
- Monitor Market News
Keep track of any news and analysis relevant to the markets you are spread betting in, whether that’s economic results, earning reports, or sporting performances that might impact prices and your decisions.
- Carefully Manage Leverage
Leverage can be a powerful tool for increasing profits, but it also increases risk exposure. Use leverage wisely and avoid margin calls.
- Learn from Experience
Always review your trades, analyse any mistakes you made, and refine your approach over time.
Spread Betting Taxes
One of the attractions of spread betting for many traders is that there are no taxes on spread betting in the UK. Most profits are entirely tax-free for individual traders. Unlike traditional investing, spread betting is classified as gambling rather than investing, meaning you don’t have to pay Capital Gains Tax (CGT), Stamp Duty, or Income Tax on your profits.
However, if your main source of income is spread betting, HMRC may decide you are a professional trader, which could make you liable for tax.
How to Spread Bet on ActivTrades
Spread betting with ActivTrades offers cost-effective, commission-free trading on a wide range of markets and instruments 24/7, and it’s easy to get started.
Step 1: Open A Trading Account
It’s easy to open an ActivTrades account. Verify your identity and complete the registration process.
Step 2: Fund Your Account
Deposit an affordable amount into your account via debit card, bank transfer, or e-wallet.
Step 3: Choose Your Market
ActivTrades offers a wide range of spread betting markets. Trade the price movements of stocks, foreign exchange, precious metals, energy, indices, etc.
Step 4: Place Your Bet
Choose your position, deciding whether you want to buy or sell based on the market direction.
Step 5: Monitor and Manage Your Trade
Keep track of your spread betting positions via the ActivTrades platform. Use stop loss and take profit orders to manage risk.
Step 6: Close the Bet
Once satisfied with your position, close your bet to lock in profits or minimise potential losses.
Want to get started?
FAQS
What is spread betting?
Spread betting is a form of speculation on financial markets where you bet on price movements without the need to own the underlying assets.
Is spread betting legal in the UK?
Yes, spread betting is legal in the UK and regulated by the Financial Conduct Authority (FCA).
Do I need a spread betting account?
Yes, to place spread bets, you must open an account with a spread betting provider like ActivTrades. You can find out more here.
Are my profits from spread betting taxable?
In the UK, profits from spread betting are generally tax-free, as it's considered gambling rather than investing.
Can I use a demo account?
ActivTrades offers a demo account to practice spread betting with virtual funds before you risk real money.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
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