An introduction to Spread Betting
Traditionally people have invested in the stock market in one of two ways. They would either acquire shares in companies by investing in a fund which is managed by a fund manager who would in turn buy and sell shares in numerous companies so as to achieve the objectives of the fund. Alternatively people invest directly in companies buying (and selling) company shares through a stockbroker.
In recent years, Contracts for Difference (CFDs) trading has become an increasingly popular way to trade in a wide range of instruments such as shares, indices, commodities and currencies. However, today there is an exciting new way to invest in companies, taking advantage of the movement in share prices and markets and the returns from this form of investing is tax free!*
Financial spread betting is the tax free* alternative to conventional share dealing. It gives investors the chance to take advantage of the movement in share prices whether they rise or fall; and what’s more you can do it 24 hours a day.
A spread bet effectively means you are placing a bet on what you think shares or the market will do next. If the market moves in your favour, the more profit you will make and the level of profit you could make is unlimited. Equally the more the market moves against you, the more you could lose – and you may lose more than your initial stake.
Tax Free Trading*
Your return from spread betting (or your winnings) is free from capital gains tax (CGT).* Where as with traditional share dealing CGT is payable on your profits.
Similarly, spread betting is also exempt from stamp duty because you are not investing in actual shares but taking a ‘position,’ a gamble on whether share prices will rise or fall.
What is a spread?
A spread is the difference between the price you can buy shares at and the price you can sell them at. If you buy at the higher price it is said you “go long” at the higher price because you think the market will rise. If you decide to sell at the lower price it is said you “go short” because you think the price will fall.
For obvious reasons spread bettors want the difference between the buy and sell prices – the 'spread' – to be as low as possible, so the market does not have to move far before you are in profit.
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Warning – There are risks with spread betting
As with most things in life, the benefits of spread betting are accompanied by risks. Spread betting is a flexible and tax-efficient way to exercise your skill, judgement or simple hunch. However, it would foolhardy to even entertain the idea of using spread betting without having thought about and planned an effective risk management strategy.
Unlike most traditional financial dealing services, spread betting is a leveraged product. It is leveraged because the money you spend on your bet is subjected to a multiplier giving you exposure to a much larger proportion of an underlying market than if you had invested directly (e.g. through purchasing the underlying shares).
However, the effect of leverage also means that spread betting can result in losses that exceed your initial deposit. So, before you engage in the use of spread betting it is very important to make sure you have thought about and planned how to manage or minimise your risk exposure.
How to manage your risks
1. Know your market
It is important to know and understand the market you are dealing with before you actually release any money. Having a feel for the likely level of volatility and the chance of sharp price movements is a must when considering the risk associated with each spread bet.
2. Keep an eye on open positions
Another key element in your risk management strategy is to keep a very close eye on all your open positions and this is considered to be crucial if you have not put a stop loss to the bet. When markets are volatile they can move hundreds of points in minutes. Remember all the market knowledge in the world is not sufficient excuse for not actively monitoring your account.
3. Stop Losses and Limit Orders
Of course there will be occasions when it is simply not possible to a keep close eye on your open positions and you will need a fallback position or some form of protection against market volatility. In view of this you are recommended to use one of two order types to manage the risk you are running whilst not limiting the potential for profit.
So why not start spread betting today...
The concept of spread betting is simple. If you think a market is set to rise you 'buy' at the top end of the quoted price (the offer price), or if you think the market will fall you 'sell' at the bottom of the quoted price (the bid price).
Remember - your position is a bet and therefore free from capital gains tax.*
Contact HBSpreads.com
Website
www.hbspreads.com
Email
info@hbspreads.com
Telephone
Trading: +44 (0)20 3326 2145
Customer Services: +44 (0)20 3326 2139
Address
HB Spreads
Floor 37
One Canada Square
London
E14 5AA
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*Spread Betting is currently free from Capital Gains Tax (CGT) and there is no stamp duty. It should be noted that tax treatment depends on your individual circumstances and may be subject to change in the future.
Spread Betting is a high risk investment and it is possible to lose more than your initial deposit. Spread Betting is not suitable for all investors and you should ensure that you understand the risks involved and, if necessary, obtain independent financial advice to ensure that the product fits your investment objectives. †Tax law can be changed or may differ if you pay tax in a jurisdiction other than the UK. HB Spreads is a trading name of Gekko Global Markets Ltd. Gekko Global Markets Ltd. is a company registered in England and Wales under register number 03148972. Gekko Global Markets Ltd. is regulated and authorised by the Financial Services Authority, FSA Register number 184333.
