What is Shares Spread Betting? How to Spread Bet on Stocks

spread betting on shares

Such companies tend to have more access to finance and their international presence helps them weather most storms, even those that hit us in 2007 and 2008 which wiped many smaller caps. This gives traders an opportunity to buy and sell a share of a company that is listed on a stock exchange. Profit from falling and rising prices on 1000s of global equities including AIM stocks with a market capitalisation of £5m+. CFDs are a high-risk investment product because of their lack of regulation/oversight, lack of liquidity in some scenarios, and the need to maintain margin incase of losses.

  • But, when you trade shares spread betting markets – the underlying instrument will come with an expiry date.
  • Any profit or loss you make will be magnified, relative to a share’s price fluctuations.
  • This can be broken down by the location of the market (e.g. UK, US), or the industry the company operates in (, healthcare).
  • If you happen to buy shares in a company which goes on to perform well, the value of your shares would go up and you would sell them at a profit.
  • 81.40% of retail investor accounts lose money when trading CFDs with this provider.

The share markets you have access to will depend on which broker you sign up with. For example, if HSBC stocks increase by 10p – this might be reflected as 10 points at your chosen broker. In turn, if you went long at £5 per point – you would have made a profit of £50. A simple example of a bet share transaction is that if you decide to buy 100 shares of Apple stock for $10 per share. There are two types of shares, or stocks, which are Common stock where a person is looking for long term growth and Preferred stock where a person is looking to make money. Get tight spreads, no hidden fees, access to 12,000+ instruments and more.

Margin and Mitigating Risks

If profits are realized, the CFD trader will net the profit of the closing position, minus the opening position and fees. Profits for spread bets will be the change in basis points multiplied by the dollar amount negotiated in the initial bet. In the case of spread betting on shares UK – you will be trading on a short-term basis. You might keep a position open for a few days or other instances – a few hours.

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It will also provide some structure for when you open and close your positions. You would trade at the ‘buy’ price on your dealing platform, and you’ll earn £3 for every point the share price moves upwards. They can vary from one spread betting firm to another, but usually include almost all of the shares  from the main stock indices around the world.

Risk Management Strategy

FSB is a margined derivative product that allows you to bet on the price movements of all kinds of financial markets and products, such as stocks, bonds, indices, currencies, etc. An investor can get into long or short bets depending on the prediction or direction the market moves. First, participants must pay the entry spread, buying at the ask price and selling at the bid price. It’s important to note, though, that the spread a spread bettor pays is set by the spread betting company will usually be different (worse) than the spread in the actual underlying market.

On the contrary, your spread betting trading platform merely allows you to speculate on the future value of the stock. However, both shorting and leverage will increase your overall risk, which means that risk management is imperative when spread betting on shares. Once you’ve opened a spread bet, you can monitor your open positions by logging in to your account. Any running profit or loss will move in line with the underlying asset’s price. You can attach stops and limits to your open positions to help restrict your potential losses and secure profits. Limits do the opposite to stops – they close your position when the market moves a specified distance in your favour.

So if you opened your position by going long, you would close it by going short – and vice versa. Once you are ready to close your trade, you can do so by clicking on the open position and selecting the ‘close’ button. It is worth noting that blue chip stocks commonly trade at a premium to other smaller companies, particularly during times of economic turmoil.

For every point that the price of the shares increases, you multiply the point movement by your stake size to get a profit. The first difference is that when spread betting on a share, you can utilise leverage​, which means that you only need to pay a percentage of the full value of the trade, known as a deposit. Any profit or loss you make will be magnified, relative to a share’s price fluctuations. Whatever you do make sure to familiarise yourself with the stocks you are following. When spread betting on shares, it is important to know when a company is
releasing updates.

Decide whether you want to spread bet on the spot market, forwards or options

There are a handful of options in the UK market – all of which are regulated by the FCA. You do, however, need to look at what share spread betting markets are supported and how much you will be charged to trade. Ultimately, it takes just seconds to set up a shares spread betting position – meaning that any time you are concerned by market uncertainty – you always have the option of hedging.

Remember, when you close your position will depend on your trading style and plan. The more the market moves in the direction you predict, the more profit you’ll make; the more the market moves in the opposite direction, the more you’ll lose. Our platform enables you to observe trade suggestions using trading signals. You can also set up trading alerts that’ll notify you when market events change so that you won’t miss any opportunity.

Advantages of Shares Spread Betting

Likewise, spread betting is done over the counter (OTC) through a broker, while CFD trades can be completed directly within the market. Direct market access avoids some market pitfalls by allowing for transparency and simplicity in completing electronic trades. Risk in investing can never be avoided; however, it is the investor’s responsibility to make strategic decisions to avoid severe losses. In Cfd trading platform both CFD trading and spread betting, the potential profits may be 100% equivalent to the underlying market, but so can potential losses. Investments in financial markets can reap large rewards; however, traders cannot always access the capital necessary to get significant returns. Leveraged products offer investors the opportunity to get significant market exposure with a small initial deposit.

spread betting on shares

If you hold an open spread betting position for a share when a dividend payment is made, an adjustment will be made, and capital may be credited or debited to your account. On the other hand, investors are restricted to buying and holding the asset when share dealing. This means that they can only take one side of the market and hope that the share price will increase over time, allowing them to profit over time. As with all trades, it is difficult to know in which direction a share will move, which could end up with investors losing money. While spread betting may seem like an easier and more cost-efficient option on the surface, trading on margin can result in substantial losses if the market moves against your favour.

Spread betting, unlike CFDs, is free of commission fees and profits are not subject to capital gains tax. Spread betting allows investors to speculate on the price movement of a wide variety of financial instruments, such as stocks, forex, commodities, and fixed-income securities. You have two ways to trade shares, either via spread betting or CFD trading. When you open a spread betting account, you can trade any market in pounds, whereas with share dealing or CFD trading you’d need to convert to the local currency. Likewise, spread betting and spread trading may sound similar, but they are very different. Spread trading involves simultaneously buying and selling related financial instruments to profit from a change in the underlying difference in value (the spread) between the instruments.

Let’s look at the numbers and see how the costs of spread betting in the longer-term compare with buying and holding company shares. You need to check your chosen shares spread betting UK broker to assess how much one point movement amounts to – as this can and will vary. Spread betting can be a useful tool for anyone who wants a range of asset classes, tax-free trading, and the opportunity to speculate on markets that are rising and falling in price. A trading plan outlines your motivation, time commitment, goals, attitude to risk, available capital, markets to trade and preferred strategies. Creating one is particularly important if you’re new to the markets as it can help you take the emotion out of your decision making.

spread betting on shares

But, by ‘spread betting’ shares – you have the chance to take advantage of 0% commissions, leverage, and short-selling capabilities – and all your profits will be exempt from capital gains tax. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

In each case, she still gets a profit of £250, as she nets five points, at £20 per point. Structuring trades to balance profit-and-loss levels is an effective strategy for spread betting, even if the odds aren’t often in your favor. Most brokers now offer guaranteed stop loss orders (or GSLOs) in addition to regular stop loss orders. The bettor then decides on the stake size—how much they want to bet on each point, or the minimum movement in the security price. A point will typically be equal to a penny per share for a stock and a point for a stock index futures contract but can vary for other instruments like commodities. In other words, a bettor can make a bet that will pay (or lose) £5 for every penny that a stock goes up or down or every one-point change in the value of an index futures contract.

This means that you have the chance to enter and exit as many share trading markets as you wish without getting hammered by brokerage charges. In the world of spread betting shares UK – price movements are determined in ‘points’. This is very similar to conventional stock indexes like the FTSE 100 or Dow Jones – which are priced in points rather than pounds or dollars. The exact price unit will be determined by your chosen spread betting provider and the respective market. 75.26% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.