The concept of spread betting is simple. If you think a market is set to rise you 'buy' at the top end of our quote (the offer price), or if you think the market will fall you 'sell' at the bottom of our quote (the bid price).
Your position is a bet: you never actually own the instrument you are 'buying'. The important fact is that when you 'buy' you want the price to go up, and when you 'sell' you want the price to drop.
The difference between the bid and offer prices is known as the 'spread'. Our dealing spread is the only charge you pay; there are no fees or commission.
Example: 'Buying' Vodafone
Say Vodafone is trading in the market at 124.3/124.6p. Our Daily quote for Vodafone stands at 124.1 – 124.8, and you decide to 'buy' £50/point at 124.8, our offer price. To open this position, we require deposit of £312.00 – being 5% (deposit factor for Plus Account holders) x £50 (bet size) x 124.8 (opening level).
With this bet you will make £50 for every point that our 'sell' (bid) price (the price at which you can close the position) rises above 124.8 and lose £50 for every point the bid price falls below 124.8 .
Our live price for Vodafone updates with every market move throughout the trading day. By mid-afternoon our daily quote has reached 127.1 - 127.8 and you decide to take your profit.
You close your bet by 'selling' £50/point at 127.1, our bid price. You have made (127.1 - 124.8) x £50 = £115. And with no tax to pay!
However, please note that had the price moved against you, you could have lost more than your initial deposit.
Compare the cost of purchasing shares
Your £50/point bet produces a result equivalent to buying 5000 Vodafone shares: with a conventional share holding at this level, each penny movement in the price would also be worth £50 to you. However, the initial outlay to open your spread bet is much more modest:
- Cost to buy 5000 Vodafone shares: 5000 x 1.248 = £6240.00
- Cost to place equivalent spread bet: 50 x 124.8 = £6240 (Deposit of 5% required for Plus Account holders = £312)
By choosing the spread-betting route you have also avoided paying any commission or brokerage fees, capital gains tax or stamp duty*. The only charge is our dealing spread. You should, however, be aware that your maximum potential loss is the same whether you spread bet or buy the equivalent shares.
To find out more please see our Detailed Example.
*Tax law can be changed or may differ depending on your personal circumstances.
The PureDeal platform
Deals are transacted through our PureDeal trading platform, a customisable interface which provides quick fire one-click dealing and full account management. Through PureDeal we also offer a full range of free trading tools and charting packages which provide up-to-the minute news and research to help your trading.
The size of the bet which you place through PureDeal is entirely your choice, providing you meet the minimum size for that market. If you 'buy' at £5 per point, for example, this means you make £5 for every point the price goes up and lose £5 for every point it moves down.
Learn about risk
Spread betting is a leveraged product, so it is important to understand the risks involved before beginning to spread bet. Find out more about about types of risk and how to manage them, or if you're ready to start spread betting now, you can open an account online in minutes.