Spread Betting Slowly Evolving Towards Mainstream
The advantage of spread betting, as opposed to buying shares, is that it provides one of the simplest ways to bet on markets moving downwards, as they have in recent months. Moreover, bets are free of stamp duty, whilst any gains aren’t subject to capital gains tax (CGT).
The majority of regular readers will be fully aware that the best way to enhance their trading account is to trade with leverage. In the past, the only way to leverage an equity position in the UK market was to buy or sell individual share futures or take on a call or put position with options. Nowadays it would seem that the undisputed heavyweight for the trading community are the fantastic derivatives just like spread betting and cfds. That’s all well and good for short-term traders and spread betting is certainly an instrument that most of us can make use of to great success with the speculative part of our portfolios, but each individual should have a multi-faceted approach to wealth creation - above and beyond exclusively trading.
Spread betting is a useful means for the periodic down-bet though I must admit I am not an advocate of short-selling. I feel that the very high profile loudly shouted aggression with which certain ’shorters’ hit a completely undeserving share nowadays is destructive and its outcomes are at times very long-lived, long after the short-sellers have taken their profit and gone. Folk get terrified, and if a stock recently been hit, won’t buy for fear it’ll occur once again. In the medium term, a company can be so seriously damaged that it can’t raise funds apart from at fire sale prices, and suffers even more because investors have lost confidence in it.
Nevertheless, you will find circumstances where a stock gets so far ahead of itself that it’s daft. A down-bet could be beneficial here if you are convinced that the share is about to be re-rated in a downward direction. I’ve tried it numerous times and generally it has worked a treat!
Also, one can use spread bets as a means of adding to an existing long-term holding at a lower cost than buying more shares, rather than betting on short-term stock market movements, not to mention ex-divs…
Indeed popular have these products turn out to be that they have been estimated to account for more than one third of total trading volumes on the London Stock Exchange. CFDs and spread bets are deals between the client and his or her broker so don’t themselves go through the exchange, but the hedge that the dealer puts in place to cover his position does result in an exchange trade.
This shift away from share trading to dealing in derivatives concerns several observers because it takes liquidity from the cash market, particularly for smaller stocks. Gavin Oldham, chief executive of the Share Centre, a retail stockbroker says ‘They say it’s backed up by the [hedging] business which goes through the stock market but the volumes are netted off.’
At the retail level, spread betting is expanding quicker than CFDs. Anyone who spread bets perceives they will win thus they don’t desire to pay the tax and in the UK there’s no capital gains tax on spread betting gains. Because you don’t hold a contract (share) but bet on the outcome makes it a gamble. In any other case the procedure is very close to trading via a futures broker. All firms are regulated in the UK (unlike Forex). People who fail at spread betting will probably fail trading via a conventional futures broker. If you live in the UK and are not into scalping for ticks, then spread betting can be much more beneficial due to favourable tax laws, which indeed can change tomorrow, next year, after ten years, and so on.
There has been a move among retail investors over to spread betting from CFDs however few go the other way. Among institutions, no one makes use of spread bets because the corporate pay tax.
Getting the best information on Spread betting is no easy task nowadays. If you are looking for more information on Spread betting, then I suggest you make your prior research so you will not end up being misinformed, or much worse, scammed. If you want to know more about Spread trading, go here: Spread trading
Tags: Gambling, spread trading
