| For many, financial spread betting typifies casino | | | | 351p to 352p, but you think the share will end higher |
| capitalism, the City of London and all the woes of the | | | | you could buy at £100 per penny movement |
| present world economy. At the end of the day, It's | | | | at 352p. If the firm ends up at 360p (8 points higher |
| high-risk, high-reward and remarkably tax-efficient | | | | than the firm's buy price) you win £800. |
| way of gambling. Ever since Stewart Wheeler, the | | | | However, if it ended the day down two points from |
| founder of IG Index, hit upon the idea of trading on | | | | the buy price at 350p, you would have to pay |
| the price of gold and not the actual commodity itself | | | | £200. But, to create the same exposure and |
| over 30 years ago, spread betting has offered | | | | potential return by simply buying shares in that firm, |
| access to markets previously only accessible to the | | | | you'd have to part with about £35,200! |
| institutions. Now, via shares, indices, commodities and | | | | The upside of relatively small sums for a large |
| currencies, the spread betting market is still one of | | | | exposure can also lead to the downside of similarly |
| the most attractive, relatively easy to understand | | | | huge losses. With some spread-betting companies |
| and cheapest option for anyone who fancies the idea | | | | requiring deposits from as little as 3% of the |
| of playing the markets for profit. | | | | equivalent direct investment value, it only needs a |
| Although you may "trade" instead of simply laying a | | | | slight movement in the share price in the wrong |
| bet and once the bet is live you "hold a position", the | | | | direction to leave you (the punter) owing the bookie |
| reality of spread betting is based on the same | | | | (spread betting firm) substantial amounts of money. |
| principles as ordinary gambling, or many other | | | | You can instigate "stop loss" triggers whereby a bet |
| investment techniques for that matter. Money (your | | | | is automatically closed if a share price or other index |
| money) is put at risk in the expectation or hope of a | | | | plummets beyond a certain level, effectively limiting |
| certain outcome, resulting in a return on that | | | | any loss. However, it's still a loss and you still have to |
| investment. | | | | pay. Spread betting means you are risking your |
| One of the attractions of financial spread betting is | | | | money every time you trade and therefore you |
| its tax-free status. Your transaction is not a trade, it's | | | | must get it right every time. If you fail just once |
| a bet. Therefore your profits are free from UK | | | | then you could lose everything. So the golden rule is |
| capital gains tax and income tax and because you are | | | | the same as that for gambling: never bet more than |
| not physically buying a share when you trade, you | | | | you can afford to lose. |
| are also free from stamp duty. | | | | With those caveats in mind, spread betting does |
| However, the advantages go further than that. It's a | | | | have many advantages and in terms of ease of use, |
| marginal activity, meaning that the bets themselves | | | | access, relative costs and adaptability, it provides one |
| don't have to be huge sums to potentially make a lot | | | | of the simpler and potentially very rewarding starting |
| of money. For example, if you see a prediction of | | | | points for any budding trader. |
| share price movement (the spread) for a firm of say | | | | |