I went to a conference recently thinking it was on trading but it mostly referred to spread betting which I had never heard about. I have done a bit of research, am I correct in assuming they are basically the same thing except you make your money in spread betting by staking a “wager” on how much the pips move (say $10 per pip move) rather than making your money on the actual pip value? Spread betting also has an expiry date and because of these differences, it is treated tax free in the UK which is why it is popular?
I live in Germany so don’t think it is an option for me, though I wish it was!
Basically yes you are correct: there is a similarity in both trading and spread betting – you try to let’s guess in which direction the price of a specific asset will go. I am not sure about the expiration date but from my point of view the “tax free” part is what makes spread betting attractive. However I am not sure if this is actually correct as the cost to open a position is contained within the spread…
Maybe someone with experience in spread betting could add more to the topic
If you have the techniques of trading via a broker - technical analysis, position sizing, stop-losses, etc. etc. - spread betting is a very convenient and low entry cost means of accessing the markets. Each “trade” is a bet. You can bet on the value of an instrument by a certain date or you can just go for the “Rolling” bets, which have no expiry date but are a little more costly (but not so much as to make a difference between a winning trader and a losing one).
SB is not a legal product in certain jurisdictions so you would be refused and application to open an account if resident in these.
In the UK SB is well regulated. The bet is not access to the underlying instrument itself, e.g. “buying” the Dow does not confer ownership on anything, the Dow is itself just an average. In older times this led some firms to provide misleading quotes to induce their clients to e.g. open a long position (place a bet the instrument’s price was going to go up), then they reduced the price quoted so that the client was stopped out and lost the bet; eventually their account would be wiped out. In the UK this is highly illegal and firms doing this will themselves be quickly wiped out by the regulator. Anyway, as is said above, they make enough money off the spread.
It is tax-free in the UK (for UK taxpayers).
You can start SB in the UK with just a few hundred pounds and a bet can be as little as £1 per FTSE100 point. One SB account allows access to indices, UK and foreign shares, forex, commodities etc.
Look at it as proper trading, its not a fun bet like on a horse with a jokey name in the 3:15 at Ascot.
IMO, Spread betting is a form of gambling, you won’t be able to earn something substantial there. Better to focus on trading forex or futures, there is a lot of stuff to read and learn, moreover the skills you gather can be applied perfectly in other domains if you don’t succeed in trading.
Gambling is the wrong label for SB. Spread betting is a form of speculating. On that basis, spread betting the Dow, trading forex through a broker, buying BP shares through a stock broker, and taking a degree in medicine are all forms of speculation. Gambling in its pure form is buying a lottery ticket, as there is no input from the client which can affect the outcome.
On the other hand, if you’re a skillful trader, you can make money in SB, and the better your skills, the better the outcome.
Legally, I assume this meets the definition of gambling which is why it has been set up this way, to allow it to be tax free so you are correct.
But can you please let me know why you think this is anymore risky or significantly different from trading? I believe you can still place stops and use the other risk management tools. You are still trying to pick the direction of the market and making or losing money depending on what happens? I would be really interested to know because to me, it just looks like this is set up to avoid taxes and there is no real fundamental difference.
I say so too, there’s no fundamental difference. At least until you get into the big money, where financing costs for SB become a serious overhead. But that is the realm of so few traders anyway out of the number who try it as to not be a serious consideration.
Of course, some people have a religious or cultural or moral objection to anything carrying the label gambling / betting: they are fooling only themselves.
