FAQ for Financial Spread Betting

Which is the best financial spread betting provider?

There is no single answer to this and where one trader might be very positive about a particular broker another might hate them! The key things to look for are spread sizes, minimum bet sizes, markets available to bet on and how efficient and reliable their trading platform is. In our section on spread betting providers you will find some further details on what to look for. Our comparison table also gives the most popular and reputable companies in the market.

Spreads can vary on different instruments from company to company so it is often worth opening up several accounts and using the one that offeres the smallest spread on a particular bet.

How do I open an account?

It is very straightforward and can take a matter of minutes. Clicking through onto a spread betting providers site and then filling in a few details will allow the account to open and then it is a case of depositing funds from a credit or debit card. Demonstration accounts where no real money is used are also available with some providers. Go to the Spread Betting Sites section to see some of the major providers.

What hours can I trade?

The good thing for those with day jobs is that most companies provide bets from Sunday 2300 to Friday 2115 which means it is available 24 hours a day during the week. By utilising limit orders it is also easy to set up a bet which will only execute if the price hits that level. This means that a trader could set up the order in the evening and it executes automatically the next day when the price hits that level.

Are there any foolproof strategies to winning?

Absolutely not! The key to spread betting is to understand what you are doing and understand the risks. Much as with poker a trader will always seek to maximise the probability of winning so that over the longer term he comes out on top.

Some of the simplest strategies have been shown to work best but these require patience to wait for the right moment. This requires the right mindset and explains why many people fail.

Money management and risk management are as key to being successful as understanding the markets. Risking too much as a proportion of your total account can lead to disaster.

What should I bet on?

There are thousands of instruments to spread bet on but it is important to get involved in only those that you have a good knowledge of. For those starting out, this will normally be indices or shares. Indices can however be surprisingly volatile and can damage the trading account of a beginner quite quickly. With minimum bets at £1 and an index moving 100 points in a day sometimes it can be easy to lose hundreds of pounds quite quickly if you are not sure what you are doing.

Most blue chip shares tend to be less volatile and a better starting point although their profit potential will also be lower and volatilty is so low.

What is the minimum amount I can bet?

Some spread betting companies will allow bets as low as 10p per point during limited term 'training' periods but the lowest normal bets are generally 50 pence per point whilst the commonest lowest bet is £1 per point.

How much do I have to deposit to open an account?

This varies from company to company and also on what you wish to bet on. You can start with as little a £100 but this will also be effected by the margin requirement on the instrument a trader wishes to bet on and the distance to the stop losses he is using. See Margins.

What is the difference between Spread Betting and Contracts for Difference (CFDs)?

CFDs are traded in a similar fashion to shares where the broker will quote a price and take a commission. Price movements also mirror the underlying instrument. Long positions in CFDs also carry rights to dividend and they can be kept open as long as the share exists rather than having a fixed period as in spread betting. CFDs are also traded on margin.CFds furthermore are traded in their traded currency which means that if a trade is made in gold it will be denominated in dollars - for someone using Sterling or Euro as their base currency this creates an exchange rate risk. A spread bet will have it's risk as a unit of local currecy per point meaning there is no currency risk. The spreads on CFDs will be less than on spread bets as the broker charges a commission instead.

CFDs are also liable to capital gains tax which is not the case with spread betting profits. This does mean that CFD losses can be set off against capital gains for tax purposes.

What is the most important aspect of spread betting?

There are several important factors in spread betting such as understanding the platform, betting sensible amounts, not trading on emotion etc. but these all combine together to form a common goal which is Capital Preservation. Many traders trade quite defensively making trades only when a good opportunity comes along and then risking only a small proportion of their account. This is largely down to the fact that if they wipe their account out on a few bets they are then out of the game. Many of the plans and strategies devised around spread betting and trading are based on maximimising the upside potential and minimising the downside so that their account stays in shape.

Why isn't spread betting taxed?

The FSA categorises spread betting as gambling and any profits are treated as winnings rather than a capital gain. This allows all spread betting winnings to remain tax free.

How can prices be offered on Indices when they are closed?

You will find that if it is late at night there will still be prices available on the FTSE even though the exchange is closed. How is this so? At these times a spread betting company will be basing their quotes on markets that are open such as the Dow, S&P and Nasdaq, as these are very closely correlated. This also explains why you can't trade shares out of hours as they don't have a 24 hour correlated market anywhere- they stop trading at the bell. Currencies are the classic 24 hour market and these are traded around the clock globally.

What is a rolling daily contract?

These are daily bets that do not automatically expire at the end of the day but roll over. A small overnight financing charge is normally applied and deducted from the trader's account. It is worth noting that there are two treatments that spread betting companies apply in rolling trades. One is to not close the bet at all at night and the other is to close it but re-open it at the same price the next morning (i.e. on re-opening you are not incurring the spread again). The disadvantage of the latter is that if a trade is in a losing position at the end of a day the loss will be realised and deducted from your account. We prefer the first method as the loss is not realised and the it is a true rolling position.

How are dividends treated in spread betting?

Whilst spread betting on shares does not imply any ownership or dividend rights directly in a company, dividend adjustments do accrue. If a daily position is held at the time when a share goes ex-dividen then dividend adjustments are credited to long positions and debited from short positions held at the close of business on the day before the ex- dividend date. If you are long, you may receive 80% to 90% of the dividend and if you are short you may be debited 100% of the gross dividend. Payment is credited / debited to your account on the ex-dividend date. With futures bets the dividend adjustments will already be built into the pricing model.

Why is spread betting illegal in the USA?

The USA treats spread betting as gambling and internet gambling is illegal - as the poker companies found to their cost.