What is spreadbetting…and why I like it

Spread betting is an exciting tax free way (in the UK) of earning extra money whether the stock market or the price of a share moves up or down.

It involves reading the chart of a share price to identify a chart pattern and then deciding how you think the share price will move. You are essentially betting on how the share price will move – you are not buying and selling the actual shares.

The techniques of reading a stock chart can also be adopted by those who buy and sell shares and where spread betting is not allowed e.g. USA.

How does spread betting work?

Let’s say that after studying the chart of Goldman Sachs you think that the share price will rise (this is called a bullish position).

In very simple terms, if you open a trade when the share price is $150.65 and you exit the trade when the share price is $151.83, you have gained 118 points (ignoring the spread for the moment). You have gained 118 points because 1 cent (or 1 pence) is equal to 1 point.

If you had placed a bet of £1 per point then you would have earned £118 tax free.

You can also earn money if you think that the share price might fall (this is called a bearish position). For example, you open a trade when the share price is $150.65 and you exit the trade when the share price is $149.33. Here you would have gained 132 points.

The risks involved

So far, so good. However, as with most things there are risks. With spread betting the risks can be high if you do not manage those risks properly. This is done with the use of a stop loss.

In our example above, if you adopted a bullish position on Goldman Sachs and entered the trade at $150.65, but the share price fell to $149.75 and you exited the trade here because of your stop loss, then you would have lost 90 points (or £90 if you traded at £1 per point). Of course, if the share price kept falling and you did not use a stop loss to exit the trade, then your losses would have continued.

Why I like spread betting

Gains are tax free

Anybody with a job has enough of what they earn taken by the tax man. Spread betting gives you a tax free source of income (in the UK).

You are in control

You are a very fortunate person if you are in control of how much you earn at work. For most, their pay cheque is decided by other people. Spread betting gives you control over how much you risk on each trade and when you can exit each trade and take your profit. Spread betting also allows you to protect your gains should the market move against you.

It is enjoyable

Spread betting is fun! It feels good when you have analysed the chart of a share price and have correctly predicted how that share price will move.

Make gains whether the market moves up or down

With spread betting you do not purchase any shares, you place a trade depending on if you think the share price will move up or down. If you’re right, you earn tax free money.

Funding requirements

You can begin spread betting with less than £100!

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