What is spread betting and how it works

Explore the world of spread betting and understand how it can help you speculate on asset price movements. Dive into the fundamentals of what spread betting is, how it operates, and discover all the essential details you need to get started. Whether you're predicting if an asset’s price will go up or down, learn how spread betting allows you to place these bets and manage your investments effectively.

What is spread betting?

Spread betting is a popular derivative product you can use to speculate on financial markets – such as forex, indices, commodities or shares – without taking ownership of the underlying asset. Instead, you’d be placing a bet on whether you think the price will rise or fall.

Spread betting is leveraged, meaning you can use a small deposit (called margin) to open a larger position. Just remember that this means both losses and profits could outweigh your initial deposit as both are calculated on the full position size. As you won’t be taking ownership of the asset, spread betting is also tax-free.

The bet size refers to the amount you wager for each unit of movement in the underlying market. You have the flexibility to select your bet size, provided it meets the minimum requirement for that market. Your profit or loss is determined by the difference between the opening and closing prices of the market, multiplied by the value of your bet.

How does spread betting work?

Spread betting operates by monitoring an asset's value, enabling you to speculate on the underlying market price without actually owning the asset. To get started, it's important to understand a few key concepts about spread betting, including:
1. Short and long trading
2. Leverage
3. Margin

1. short and long trading

In spread betting, "going long" means placing a bet that the market price will rise within a certain timeframe. Conversely, "going short" or "shorting" the market involves betting that the market price will fall.
This approach allows you to speculate on both upward and downward market movements. To bet on a price increase, you would buy the market, and to bet on a price decrease, you would sell the market.

2. leverage

Leverage allows you to control a large market position with a relatively small amount of capital.
For instance, if you wanted to invest in Facebook shares directly, you would need to pay the full price of the shares upfront. However, with spread betting on Facebook shares, you could gain exposure to the market by only depositing a fraction of the total cost—often around 20%.

It’s important to note that leverage magnifies both profits and losses as these are calculated based on the full value of the position, not just the initial deposit.

3. margin

When you spread bet, you put down a small initial deposit – known as the margin – to open a position. This is why leveraged trading is sometimes referred to as ‘trading on margin’.

The margin rate for spread betting varies depending on the market you're trading. For instance, when spread betting on shares, your margin might be 20% of the trade size. In contrast, spread betting on forex could require a margin as low as 3.33% of the trade size. Check our margin rates for more details.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.