Financial spread betting is a simple and cost effective way to trade. Clients can go long or short and trade all manner of financial instruments through one account such as stocks, foreign exchange, commodities and options.
“Because you don’t incur capital gains tax, stamp duty or commission, financial spread betting is a very tax-efficient way of trading the financial markets. With spread betting, you can speculate on thousands of different assets from around the world, all from one spread betting account”
There are several other spread betting advantages. 
In the UK and Ireland spreadbets are especially popular due to the fact that they offer speculators many of the benefits of derivatives i.e., gearing and the ability to go short. What’s more there are no taxes on gains and there is no volume restriction on the number of trades made or other hidden costs. In fact, there are several other advantages and financial spread betting benefits associated with this trading instrument and it is good to inform yourself about the benefits and trading risks before embarking on your journey into the amazing exciting world of financial spread betting:
1. No broker fees or commission – Most financial instruments require you to pay a variety of fees – commission fees, clearing fees, exchange fees, spread fees, government fees, platform fees and charting fees. With spread bets, the commission is built into the spread. All you pay is the low, competitive spread you see and a financing fee if you roll a position overnight.
2. Tax free – Use spread betting to maximise the tax efficiency of your shares portfolios through generating tax-free income and sheltering gains from capital gains tax. With spread bets, not only do you avoid the Capital Gains Tax placed on profits in other financial markets, you also avoid paying income tax and stamp duty. The tax free benefit and ability to avoid the 50 basis point stamp duty, levied on share purchases in the UK is perhaps one of the most endearing qualities of this trading product. However, while spread bets are currently tax-free, tax laws may change at any time.
3. You can trade a variety of products and markets – The bigger financial spread betting providers will quote prices on literally thousands of shares, including many smaller company stocks, investment trusts, and exchange traded funds. Clients can typically trade UK and overseas shares, indices, currencies and commodities as well as many other areas all from one account on a single platform. You can equally trade the FTSE 100 or the Deutche Bursa or you can trade oil, gas, wheat, silver, forex and more with the same ease – all from one account. This is more expensive to do with a normal stock broking account, but with financial spread betting because you are only trading the share price, not seeking to acquire ownership of foreign equities, you can trade Australian or Japanese share prices as easily as those listed on the London exchange.
4. Leverage – In share trading, you buy-and own-the market you are trading. With spread bets you are just speculating on the market’s value, so your money is not tied to the underlying instrument. Plus, you can trade with leverage, putting up a small amount of money to control a much larger amount. In practice this means that you only need to deposit a portion of the total trade. Because you only need to pay a small percentage of the total value of the transaction to open a spread trade, spreadbets can be seen as a relatively cheaper way to get started in trading. Remember, however that trading on leverage can magnify losses as well as profits, so you should manage risk accordingly.
“Financial spread betting empowers you take advantage of falling share prices, something you can’t do otherwise unless you are a multi-million dollar hedge fund operation! During the bear market of 2008 where the FTSE 100 dropped from a high of about 6,300 to almost 3,500, the vast majority of share prices experienced sharp declines. Spread bet traders could ‘sell short’ the index to help hedge their investment portfolio. Before spread betting, it was very difficult to sell short if all you had was a traditional stock broking account.”
5. Bet on whether the market will rise or fall – Most markets place heavy restrictions on the types of trades you can place, which means most traders can only seek profits in rising markets. With spread bets, you can find profit potential whether the markets are rising or falling – a feature which clearly lends itself to trading in a bear market. This makes spread betting great for day trading as you are able to catch the price rises and falls throughout the day, which in general are only small swings.
6. You can trade with a small account and small stakes – For example, a 10 year bund contract in Europe has a 10 Euro per tick value. If you take out a spread bet you can trade at a level of 1 Euro CENT per tick. Also, any gains are free of tax. The downside is that the spreads are a little wider than the underlying market, but this is a non-issue nowadays – what with fierce competition for clients from the presence of so many spread betting providers, who are all under pressure to to keep lowering their trading spreads (the difference between the buy and sell prices). If you don’t have a lot of money and wish to start trading in a medium term style spread betting is an excellent place to start without having to increase your risk per trade to an uncomfortable level. Also, there is no commission, just the higher spread, which for a small bet size can be a pretty good deal. But, alas – they are only tax free in the UK and Ireland.
7. Availability of Stop Loss and Guaranteed Stop Losses – You can pre-set a stop loss on your bet and limit your loss to the amount you initially invested in your account. Nothing will protect you in the real world if you invested an amount of money and the share plummet to the ground, however in financial spread betting you are protecting yourself from losing your pants. Stop losses can even be arranged to be executed at a guaranteed price. It is useful to note there that many large online stockbrokers do not offer guaranteed stop losses for standard share dealing accounts.
8. No Currency Exposure – When trading overseas shares with a conventional broker you have to keep a close eye on currency movements. For instance if the pound were to rise in value against your USA dollar holdings, then your overseas holdings will be worth less in sterling terms – though the opposite also holds true. This is not so with spreadbets. All spread bets are denominated in pounds per point so there are no currency complications irrespective of which market you trade. In addition, spread betting providers allow you to trade shares easily in foreign markets like the USA, Germany or Japan while still using a sterling account. Suppose you’re speculating on crude oil which trades in USA dollars. The price is $100 barrel. You opt for a long position, staking £1 a point. If oil were to rise 600 cents to $106, your profit is 600 times £1 or £600. On the other hand futures or exchange traded funds are denominated in USA dollars so if the dollar had fallen by 7% against the pound during your trade, your profit on oil would have become a loss!
9. Hedging – You can use spread betting to hedge against, say, a share price falling in value. In the case of an investor with heavy exposure to a stock who is anxious that the company’s stock price might fall, the investor could open a short position using his spread betting account. In this case, even if the price falls, the investor would still not lose money, as the short bet would offset the losses incurred from the physical share portfolio.
10. After-hours trading – The trading hours of most markets are usually the same or better than the underlying exchanges. You can practically trade 24 hours a day, 5.5 days per week, with minimal time outages. In fact, some providers even offer after hours trading on key markets such as the FTSE, USA S&P 500, Dow, Germany 30 and some commodities such as gold.
All these benefits and more can give financial spread betting a huge advantage over owning the actual financial market investments.
“Spread betting also represents an ideal instrument for speculators looking for opportunities tο profit frοm a range οf volatile markets. In this instance, global economic jitters, hikes in the price of bullion or struggling equity markets can be a godsend for spreadbetters. As a spread betting company’s owner put it: ‘70% of our spread betting trades are open and closed in a day’. ‘This kind of trading just wouldn’t be profitable for an ordinary share trader.”