What is Financial Spread Betting?

Financial Spread Betting is a form of trading in which you bet on the price movement of a share, index, bond, commodity or currency. It is a way of participating in the stock markets without actually owning any shares. You pay no fees or commission and all earnings are tax free.

Spread betting is the flexible and tax-efficient way to back your judgement in the financial markets. You can go long or short of any market we offer, to profit from rising or falling prices. You simply 'buy' if you think that the price is set to rise, or 'sell' if you think it will drop.

All your profits are free from UK capital gains and income tax. (Tax law can, of course, be changed or may differ if you pay tax in a jurisdiction other than the UK) And there is no commission to pay when you open or close your bet. The only charge is the dealing spread.

Have a look at the Financial Spreadbetting vs CFDs page for a comparison of the two trading methods.

Financial Spread Betting Example

'Buying' Vodafone

Vodafone is currently trading at 139.2/139.5p. The Daily quote for Vodafone stands at 139 - 139.7, and you decide to 'buy' £50/point at 139.7, the offer price. This means you will make £50 for every point that our quote rises above 139.7 and lose £50 for every point the quote falls below 139.7. The live price for Vodafone updates with every market move throughout the trading day. By mid-afternoon our quote has reached 143.7 - 144.4 and you decide to take your profit. You close your bet by 'selling' £50/point at 143.7, our bid price. You have made (143.7 - 139.7) x £50 = £200, and with no tax to pay.

This is obviously favourable and losses would have resulted if it had moved against you, although you can place a stop loss on each trade to limit your downside and we recommend this on every trade.

You can see from this example that financial spread betting offers a very simple mechanism for individuals to bet on the movement of markets. Historically, the only way an individual investor could benefit from a falling market was by selling shares 'short' or maybe by investing in hedge funds. Spread betting is a means of solving this dilemma.

At Blue Index the process of opening an account is straightforward, whether it be an online or a telephone account. Investors can hold a 'credit' account, where funds are deposited in your own designated account, and winnings or losses are added to or taken out of this account. A 'debit' account is where the investor provides credit or debit card details. The maximum agreed potential loss is taken out, up front, and winnings then credited back to the investor.

If you wish to be involved in financial spread betting, just as with any other form of investment such as CFDs, never forget the basics. Do not over-commit yourself in any one transaction. Ensure you have researched and understood fully the spread bet you are going to make. Look to limit your losses if markets or events move against the bet you have made. Make sure you understand the principles of leverage and gearing it is this factor that amplifies both your gains and your losses.

You will lose money as well as make it. Most professional traders will make on average 6 loss making trades out of 10. The important thing to remember is that the 4 winning trades make much more money than your losses. Run your profits and cut your losses.

There is no secret panacea for making money on the stocks, you have to find a good strategy and then stick with it. At Blue Index we can help you formulate and hone your financial spread trading strategy, see our trading seminars page or contact Zak Mir direct on 020 7398 2556 for more information.

At Blue Index we specialise in CFDs but we can also assist you in opening a financial spread betting account, and we are happy to objectively discuss the pros and cons of each type of trading method with you if you require. Please call our friendly client services team if you require any more information on financial spread betting +44 (0) 20 7398 2562.

For more information on this subject please read the following Blue Index article: Financial Spread Betting Vs CFDs