What Is Spread Betting?

Spread betting lets you profit from movements in the price of a financial asset when you correctly predict that the price or value will rise or fall.

Spread betting is a derivative product. With a spread bet you don’t actually own the asset (such as a commodity, currency or share) that you’re speculating on. Instead, you trade on margin. This means you get the same level of exposure you would if you bought the underlying asset outright, but for a smaller initial outlay. It also means that you can bet on the price falling or rising. You buy (go long) when you think the price will rise, or sell (go short) if you think it will fall. You complete the transaction - closing your position - by effectively placing the opposite bet.

Our 'What is Spread Betting?' video explains in more detail.

 
What is Spread betting test
 

Spread betting is a simple and cost-effective alternative to share buying or commodity trading. However, it’s usually used for speculating on short to medium term price movements.

Also, as you’re trading on margin, it’s important to understand the risks involved. You have to remember that if the asset value doesn’t move the way you expected, you’re still liable for the full amount of any loss as if you actually owned the asset.

Find out more about the advantages of spread betting.

 

 

What is a spread?

With spread betting, like many other types of trading, there are two prices for an asset − the ‘offer’ is the price you can buy at, and the ‘bid’ is the price you can sell at. The difference between these two prices is the ‘spread’.

The tighter the spread, the cheaper it is for you to trade.

Spread Co offers some of the tightest spreads in the market. This includes the UK100 and US30, which both have a spread of just 0.8*, during market hours − and are fixed, unlike some of our competitors.

Find out more about our tight, fixed spreads.

 
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What is margin requirement?

With spread betting, margin requirement is the amount you need to maintain each open trade on your account. To calculate the margin requirement, you simply multiply your stake in the position you are taking by the Notional Trade Requirement (NTR) for that specific market. NTRs vary depending on the type of asset you place your bet on.
 
Let’s take an example. You want to place a £5 per point bet on the UK100 index. The NTR for the index is 25, so the margin requirement is £125 (£5 X 25).

 
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Leverage and spread betting

When you invest directly in an asset, such as when you buy company shares, you have to pay for the full value of that asset. With spread betting you can gain the same level of exposure but with a smaller initial outlay – the margin requirement. In other words, spread betting uses leverage. This is one of the key advantages of spread betting over traditional trading.

You should remember though that potential losses can be greater than your initial outlay if the asset price doesn’t move in the direction you anticipated.

 
 

 

Trading Examples

These spread betting examples that show you how we calculate your trade based on spread size and margin requirement. They show the potential profit or loss that could be made, based on theoretical trades.

 

Equity Example

Our price for Barclays shares is 285.07 (Bid) and 285.64 (Offer). Our spread on this bet is 0.05% each way, in addition to the underlying market spread.

You decide to go short at £25 a point. You place a limit order of 257p and a stop loss of 300p.

 
 

Your margin

£1 per point on a UK share is equivalent to 100 shares. Your margin is calculated as:

shares1

So:

equation_two

   

Possible Outcome   

Barclays’ share price falls to 257p (your limit order value) Barclays’ share price rises to 300p (your stop loss value)
Original bid price minus your limit order price multiplied by stake per point Original bid price minus your stop loss price multiplied by stake per point
(285.07 – 257) x £25 (285.07 – 300) x £25
Financing = £0 (0% financing on short equity positions) Financing = £0 (0% financing on short equity positions)
Profit £701.75 Loss £373.25

  

When you spread bet on equities with Spread Co

  • Your profits are tax free
  • Margins are as low as 5%
  • There’s no financing charges when you go short on equities
 
 

 

Commodity Example

Our price for Spot Gold is 1337.35 (Bid) and 1337.75 (Offer). Our spread on Spot Gold is 4 points.

You decide to go long at £4 per point. You place a limit order of 1345.75 and a stop loss of 1333.75.

 
 

Your margin

For your £4 per point bet, your margin is calculated as:

equation_fourteen

So:

equation_three

   
Possible Outcome    

Spot Gold goes up to 1345.75 (your limit order value) Spot Gold falls to 1333.75 (your stop loss value)
Limit order minus original offer price multiplied by stake per point Stop loss minus original offer price multiplied by stake per point
(1345.75 - 1337.75) x £4 (1333.75 - 1337.75) x £4
For Spot Gold a 0.1 point movement in the price equals 1 stake point For Spot Gold a 0.1 point movement in the price equals 1 stake point
Gross profit £320.00
Financing (7 days) £13.44
Net profit £306.56
Net loss £160.00
Financing (7 days) £5.88
Gross loss £165.88

     
When you spread bet on commodities with Spread Co

  • Your profits are tax free
  • You benefit from tight, fixed spreads
  • Margins are as low as £30 for Spot Silver and £80 for Spot Gold
  • Stake as little as £1 per point

 

Why not open a demo account?

Try spread betting without any commitment. A demo account lets you practise trading on a selection of markets, and experience our easy to use trading platforms.

 
 
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Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.