Spread Betting Broker Comparison For UK Traders
If you are looking for a world-class spread betting broker or just interested in learning more about financial spread betting, you have come to the right place!
Financial spread betting is a leveraged, derivative product, which allows traders the opportunity to speculate on the price movement of a financial asset. When spread betting, you never own the asset, you are just betting on whether the price of an asset will increase or decrease.
This comprehensive guide will provide you with all the information you need to understand what spread betting is and how it works. We have also listed a handful of spread betting brokers, whom we believe are the best and most reputable in the industry.
Compare Our Top 3 Spread Betting Accounts:
Spread Bet Broker
Low Cost Broker
What is Spread Betting?
Financial spread betting is when a trader bets or speculates on the price movement of a financial asset.
Spread betting is different to traditional investing because you never actually take ownership of the asset; instead you are merely betting on whether its price will go up or down.
Most spread betting brokers will offer thousands of different financial assets on their trading platform. Most will be part of the following asset classes:
- Forex, like EUR/USD, GBP/USD and the AUD/NZD.
- Indices, such as the UK100, Dax30 and Wall St 30.
- Commodities, like gold, oil, coffee and soybeans.
- Stocks, like Coca-Cola, British Airways, Apple and Facebook.
- Cryptocurrencies, such as Bitcoin, Ripple and Ether.
The aim of the game, like all investing, is to make a profit by speculating correctly.
Spread betting is an industry mostly confined to the UK, due to its tax-free nature. That’s right, those that profit from spread betting in the UK do not need to declare this in their annual tax return to the HMRC.
What Is The ‘Spread’ In Spread Betting?
For those new to spread betting, the term “spread” is the difference between the buy and sell price of an asset. The spread is also the cost of entering a trade.
Understanding Spread – Example
- You are looking to enter into a BUY spread trade on the price of the AU 200 index.
- Your broker has this market quoted as 7,200 – 7,204.
- 7,200 is the SELL price, 7,204 is the BUY price.
- The difference between the buy and sell price is 4 points and that is the spread
How Does It Work?
To start spread betting, you will firstly need to open an account with a spread betting broker. We have listed some reputable and regulated brokers in the table above.
Once your trading account has been verified, you will need to fund the account with some money so you can place your first trade. Once the account is funded, you are ready to trade!
Most spread betting brokers will offer 1000’s of markets from all around the world – a spread betting platform really is your access point to the world’s financial markets!
Spread Betting Example
- Your account is funded and you are now ready to trade!
- You follow the UK100 index closely and decide to place your first trade on that particular market.
- Broker ABC is quoting a price of 7,000 – 7,001.
- 7,000 is where you can short (sell) the market; 7,001 is the price at which you can buy the market.
- You decide to sell at 7,000 with an amount size of 5 units.
- Later that day you check in and the UK100 index has dropped 50 points to 6,950. You want to exit the trade and take the profit so close at 6,950.
- You have made a profit of GBP 250 (50pt movement x 5 units).
Some Benefits of Spread Betting
- Tax Free: Financial spread betting is tax free in the UK and that is a massive benefit. Most other jurisdictions will require any spread betting or CFD trading profits to be declared and you will be taxed.
- Access Global Markets: This derivative product provides access to all the globe’s financial markets – 24 hours a day, 5 days a week. Trade stocks from Europe, indices from the US, Japan or Australia – the world is your oyster!
- Short Selling: With spread betting, you can sell the market if you think it’s going to decline in value. This is unlike most other traditional investment vehicles, where you can only buy an asset.
- Trade Using Leverage: Spread betting is a leveraged trading product. This means that you only need to deposit a small amount of money to access significantly larger trade sizes.
What Are Some Of The Risks Of Spread Betting?
You Can Lose All Your Hard-Earnt Money!
Let’s be very clear – financial spread betting and other derivative products are extremely dangerous investment products. Most people lose money when spread betting; in fact it is estimated around 70-80% lose money when trading CFDs or spread bets. Before opening an account, please have a serious think if spread betting is the right avenue for you.
You May Lose More Than You Have Deposited
If there is a large market movement and that goes against your trade, you could potentially end up owing your spread betting broker. Please always use a broker that offers ‘negative balance protection’.
Top 4 Considerations When Choosing a Spread Betting Broker
(1) The Cost of Trading
Each broker will charge you to trade – there is no such thing as a free broker! What you need to look for is a broker that offers fair and transparent trading costs. Never forget that, the lower your trading costs, the better chance you have of making a profit!
Most brokers will charge you the spread, commission, overnight financing (if you keep trades open overnight) and exchange fees, i.e. ASX exchange fees. Check out our article on low cost brokers by clicking here.
This is probably the most important consideration. Always trade with a fully regulated spread betting broker, no excuses.
Further to that guidance, always ensure your broker is regulated by at least 1 x tier-one regulators, like ASIC in Australia or the FCA in the UK.
(3) Trading Platform
Always test drive a few trading platforms before settling on one. Most brokers offer free demo accounts so jump on and test them out to see what you like the most. Also check out their mobile trading apps as it is likely you will use these from time-to-time.
(4) Tradeable Instruments
You will have a fair idea of which markets you will want to trade. Your job is to find a broker that offers them and at a low-cost (see point one above). Not all brokers offer every market under the sun. For instance, not all brokers offer cryptocurrency or Australian stocks.