Spread betting allows traders to speculate on the price movements of various financial instruments like Forex, stocks, and commodities, without owning the underlying asset. Like CFD (Contract for Difference) trading, spread betting offers leverage, where you only need a small deposit (margin) to control a larger position. However, a key difference is that profits from spread betting are tax-free in the UK, whereas CFD profits may be subject to capital gains taxes.
This guide will equip you with a thorough understanding of spread betting, its advantages and disadvantages, and how to manage your risk. We have also reviewed and ranked the best spread betting brokers in the UK to help you find the best one for your trading strategy.
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How did FXScouts choose the best spread betting brokers?
When comparing the best forex brokers in the UK, we:
Confirmed that the brokers were regulated by the FCA or other top-tier authorities to ensure traders are treated fairly and their funds are safeguarded.
Assessed the brokers’ trading fees on the spread betting platform by opening a live account and comparing the spreads on each instrument and platform to other spread betting brokers.
Checked the number of tradable instruments available for spread betting through the broker for traders in the UK.
Assessed the brokers’ trading platforms, checking whether they were easy to use, and what trading tools were available through the platforms.
Reviewed the broker’s educational material and range of resources (such as e-books, webinars, glossary etc), including guides on how to spread bet to ensure they cater to traders of all experience levels.
Assessed the broker’s market analysis, including whether it is curated by an in-house research team or third-party providers, the quality of the material, and how frequently it’s updated.
Examined deposit and withdrawal options, costs, and times for UK residents, e.g., whether instant banking and UK credit cards are available, and what, if any, fees are involved.
Contacted customer support through the various channels offered by brokers, checking response time, service quality and whether or not they have a dedicated UK support team and phone number.
Our Broker Score and Trust Rating
FxScouts’ Broker Score and Trust Rating constantly evolve to reflect the forex market’s dynamics. We ensure transparency by incorporating regulator data and user insights. Our in-depth reviews consider over 200 metrics across seven key categories:
Trust Rating: Assessment of broker reliability and reputation
Trading Costs: Spreads and fees for clear comparisons
Platforms: User-friendliness and features
Asset Selection: Forex, stocks, and other available instruments
Transactions: Simple and straightforward deposits & withdrawals
Education: Support for beginners and developing traders
Customer Support: Accessibility, responsiveness, and expertise
Spread betting is a tax-free method of trading that allows individuals to speculate on the price movement of a wide range of financial markets, including stocks, indices, currencies, commodities, and more, without actually owning the underlying asset. Although the process of analysing the financial instrument is similar to CFD trading, the way in which the order is executed is slightly different.
Tune in to our interview with Tom Salmon, Managing Director of Trading at Spreadex to find out more about spread betting:
How does spread betting work?
The easiest way to understand spread betting is to think of how a car dealer works. They buy cars at one price and then sell them at a higher price, and the difference between the two prices, or the “spread”, generates their profit.
Spread betting works in exactly the same way. In the financial markets, two prices are quoted for an instrument, such as a currency pair. For example, if you are trading the euro against the dollar, you will see an offer (or ask) price and a sell (or bid) price quoted for the currency.
You place a spread bet based on whether you expect the price of an instrument to rise or fall. If you anticipate the exchange rate will rise, you would open a long position, in which you are the buyer. If you expect the financial instrument’s price to fall, you would take a short position, in which you are the seller. You will make a profit or loss depending on whether or not the market moves in the direction you expect.
Differences between spread betting and CFD trading
Both spread betting and CFD trading are highly popular with investors. Both use leverage and allow investors to benefit from movements in the prices of a wide range of financial instruments. You can use either spread betting or CFDs to bet that a product will rise or fall in value.
The key difference between the two products is that profits from spread betting are tax-free, while profits from CFDs are subject to capital gains tax in the UK. Moreover, while spread betting is illegal in many markets (though not in the UK), you can legally trade in CFDs almost everywhere in the world. In addition, while you do not pay a commission on spread betting, brokers may charge a commission to trade in CFDs.
What is the spread?
The price at which traders can buy a financial instrument is always higher than the selling price, and the difference or “spread” provides the broker with a small profit to finance their operations. A wider spread means there is a greater difference between the two prices, and a tighter spread means that the prices don’t differ too much. The wider the spread, the greater the costs incurred by the trader.
Spreads are measured in “pips”, or price interest points, a measurement of the smallest price move that a financial instrument can make. Most currency pairs, for example, are priced out to four decimal places and the pip is the last decimal point. So, if you are trading the euro against the dollar, you may see the following quote on your screen: “EURUSD – 1.08950 – 1.08959”.
Figure 1: Spread on the EUR/USD. Source: XTB
In this case, the spread is 0.9 pips: the difference between the bid price of 10895.0 and the ask price of 10895.9.
However, some brokers, like IG, quote the spread as whole numbers instead. Using the same example above, the quote may appear as EUR/USD: 10895.0 – 10895.9. The spread is calculated in the same way and is the difference between the bid and ask prices.
What is the bet size?
The bet size in spread betting refers to the amount you wish to bet per unit of movement in the instrument you are trading. Imagine, for example, you think the EUR/USD is going to rise and you open a long spread betting position when the buy price is 1.08950, betting £5 per pip of movement. Your prediction is correct and you sell at 1.0915.0. The market has moved 20 pips, so your profit is £100 (£5 x 20), excluding any additional costs like overnight charges and the spread. If the price declined by 60 pips to 1.08350, you would suffer a £300 loss.
What is the bet duration?
The bet duration is the length of time before your position expires. All spread bets have a fixed timescale, which can range from a day to several months. But you can close the bet at any point before the designated expiry time, assuming the spread bet is open for trading – the Forex market is open 24 hours a day during the week, and the stock market is open during business hours.
These bets run for as long as you choose to keep them open, with a default expiry date in the distant future. They offer relatively tight spreads but are subject to overnight funding. You pay this fee to hold a trading position overnight on leveraged trades. It is effectively an interest payment to cover the cost of the leverage that you are using. Because of the impact of these overnight fees, daily funded bets are generally used for short-term positions.
Quarterly bets
These bets are generally used on futures contracts and expire at the end of a quarterly period – although they can be rolled into the next quarter if you inform the broker in advance. A futures contract is a legal agreement to buy or sell a particular commodity asset, or security, at a predetermined price at a specified time in the future.
These quarterly bets have wider spreads, but lower funding costs are built into the price, making them suitable for longer-term speculation. They are divided into near (less than three months), far (three to six months) and very far (six to nine months) categories, and spreads vary according to the risk involved.
You can speculate on whether the price of a futures contract will rise or fall with spread bets, as well as with Contracts for Difference (CFDs).
How to begin spread betting
All you need to do to start spread betting is to find a broker that you like and open an account. This is simple and can be done online. You will be asked to provide proof of identity and to deposit money. Once you have an account, you need first to understand a few terms:
Spread: Spread betting companies quote two prices for every market: the bid (sell price) and the ask (buy price). The difference between these two prices is known as the ‘spread’. Traders bet per point movement in the market, with a point referring to a unit of measurement for the price movement, which varies between markets. For Forex, the unit is a pip.
Going Long or Short: You can ‘go long’ (bet that the price will rise) or ‘go short’ (bet that the price will fall). If you believe the market price of an asset will increase, you place a bet at the ask price. Conversely, if you anticipate a decrease, you bet at the bid price.
Bet Size: Your bet size in spread betting is the amount you bet per unit of movement in the underlying market. For example, if you bet £10 per point, and the market moves 20 points in your favor, you would win £200. However, if the market moves 20 points against you, you would lose £200.
Leverage and Margin: One of the advantages of spread betting is that you can magnify the impact of your bet through leverage. In other words, you only need to deposit a small fraction of the overall value of any trade. This is known as the margin. For example, if the margin requirement for a trade is 20 per cent, then you would only need 20 per cent of the full value of the trade in your account to open the position. The leverage ratio would be 5:1. Leverage allows you to gain a larger market exposure than may be possible with more traditional forms of investing. Trading on leverage can enhance your profits, but you must be aware that it can also increase your risk, so you must be certain of how much you risk with each position.
Tax: In the UK and Ireland, any profits from spread betting are not subject to Capital Gains Tax or Stamp Duty.
Risk Management: Given its leveraged nature, spread betting comes with high risk. Traders typically use stop-loss orders to limit potential losses. Some spread betting firms offer guaranteed stop-loss orders, ensuring you cannot lose more than the amount set, even in volatile market conditions.
Settlement: Unlike traditional trading, spread betting does not involve a physical exchange of goods or securities. Instead, positions are settled in cash based on the accuracy of your bet and the final market price position.
You will then perform technical and fundamental analysis on the financial instrument you have chosen to bet on. Once you have performed your analysis, you will open a bet, either long or short. You will then set a stop-loss and a take-profit and wait for the price to move. If you want more information on how to place your first trade, check out this article.
Risk management in spread betting
Given the risks involved in spread betting, it is critical that you are aware of the measures you can take to mitigate any losses.
You can safeguard against the risk of losing more than your deposit in a trade by setting an automatic stop, or limit, to define the level at which you would like your trade to be closed. A stop-loss provides you with an exit plan should a trade go wrong. For example, if you make a spread bet on a stock trading at £20 in the belief that it will go up in value, you can also place a stop-loss order at £19.50 in case your bet goes awry. This will ensure that the broker sells your stock if the price slips to £19.50, thereby limiting any losses.
Sometimes markets become extremely volatile and prices move a long way in an instant. This is called gapping and can result in what is known as slippage, where any orders you have placed may be filled at a worse (or better) level than the one you requested. You can protect against this by implementing guaranteed stops against slippage. These guaranteed stops are free to place; you only pay a premium if the stop is triggered.
A rule known as negative-balance protection ensures you can never lose more money than is in your account. UK-based brokers are required to bring negative accounts back to zero at no cost to you.
You can set up price alerts to warn you if and when markets encounter volatility.
Spread-betting tips
Traders can make consistent profits from spread betting, but preparation is key. Follow these tips and you will maximise your chances of trading equities successfully.
Use a demo account
All good brokers offer demo accounts where you can practise trading using virtual money. You can learn how the market works, how to place buy and sell orders, and how to deploy strategies, etc. at no risk to yourself. Do this for as long as you can. If you are consistently making a profit, it might be time to sign up for a real account.
Educate yourself
Good brokers offer lots of educational material on their platforms. There is also much material on the internet – including videos and examples of trades – that can help you learn all you need to know to trade successfully.
Don’t get emotional
Trading can be very stressful. Using a demo account can help you to decide whether the stress of losing money is for you or not. It is important to keep your cool when the market turns against you and know when to exit a position and accept your losses.
What are the advantages of spread betting?
Spread betting is very popular among traders in the UK. Some of the advantages of spread betting include:
The profits of spread betting are tax-free and you don’t have to pay any stamp duty because you don’t take ownership of the underlying asset.
You can trade tens of thousands of instruments on global markets, including foreign-exchange pairs such as the EUR/USD.
You can go long when you believe the price of an underlying asset will rise, or go short when you think the price will fall.
You can place your trades “on the go” via an app on your mobile device, or in your home on a laptop or desktop. It’s easy to sign up with a broker, and there are lots of them to choose from.
You can benefit from leverage, whereby you only have to place a small deposit, or margin, to make a relatively large trade.
You don’t need to take physical delivery of the underlying asset you are trading.
You can access financial products that may not otherwise be available to you, including stocks listed on foreign exchanges and derivative instruments (such as futures contracts) that may otherwise have substantial minimum investment requirements.
You can close a position at any time during the trading day. That means you can hold a position for as long as you want, be it seconds, minutes or hours. You can even hold a position overnight, although there will be a charge for doing so. Moreover, many brokers offer a variety of options when it comes to trade size, allowing a wide range of traders to access the market. This includes beginners and casual traders seeking to experiment with investment strategies while limiting their risk by focusing on small trades.
You can use spread bets as a way of “hedging” or offsetting your trading positions with balancing trades in case your beliefs about whether those initial positions are likely to rise or fall prove wrong. So, you can take a long position in shares in XYZ that will profit should the price rise, while taking out a short position that will prove profitable should the XYZ share price fall. In other words, instead of selling XYZ at a loss should your expectation of the share price moving higher prove wrong (and draining your limited financial resources in the process), you can open an additional short position that will generate earnings to help offset any losses from your initial position.
You can also use spread bets to insure against a rise or fall in any investment you have. Suppose, for example, you have a standard portfolio of shares in global equities that you wish to keep invested for the long term. Now imagine you anticipate that global equities will soon encounter turbulence and fall sharply before correcting. You could sell all the shares in your portfolio in the belief that you’ll be able to buy them back at a much lower price. But that could prove costly in terms of transaction expenses and taxes, and it is risky: global equities might rise sharply and you might not then be able to buy them back at a lower cost. Alternatively, an investor fearing a market correction could short-sell an equivalent amount of spread bets in an index of global shares, enabling them to take advantage of the short-term downtrend. At the same time, the investor continues to hold the shares within the investment portfolio, in the belief they will thrive in the long term.
Disadvantages of spread betting
The disadvantages of spread betting include:
The leveraged nature of spread betting magnifies market movements and increases volatility.
Spread betting on shares grants investors no entitlement to dividends or other rights shareholders enjoy.
Losses can be sudden and unlimited without a stop-loss position (see “Risk management in spread betting”).
Your losses are not limited to your original stake. If you buy £5000 of shares, for example, the most you can lose is that £5000. By contrast, with spread betting you can lose two, three or even ten times your original stake within a few minutes due to leverage. In other words, spread betting involves much greater risk than other trading strategies.
Although leverage means trading a large amount with a relatively small sum, spread betting can be surprisingly capital-intensive. That is because you always need to keep a large amount on reserve to cover any losses and avoid a margin call or, worse still, have the broker close your account. A bet involving £1 stakes, for example, might still require an account with £500 of trading capital to be safe and sustainable.
Spread-betting markets can be extremely volatile. While this creates profitable opportunities, it can also prove dangerous, with prices moving sharply in either direction. This can result in significant losses amassing over a short period.
You are entering into a contract with the broker and there is always the risk that the other party to the contract could go bust or, in the case of an unregulated broker, simply renege on the deal.
Conclusion
Spread betting offers several advantages to traders. You can bet on a huge range of instruments, there are tax advantages and you can benefit from leverage. However, spread bets are complex instruments with a high risk of losing money rapidly, due to leverage. You need to ensure you thoroughly understand the concept of spread betting and how much money you could lose on each bet, and ensure you take advantage of the tools at your disposal to limit the financial risks you are exposed to. You should also practise on a demo account until you are completely comfortable with spread betting.
Forex Risk Disclaimer
Trading Forex and CFDs is not suitable for all investors as it carries a high degree of risk to your capital: 75-90% of retail investors lose money trading these products. Forex and CFD transactions involve high risk due to the following factors: Leverage, market volatility, slippage arising from a lack of liquidity, inadequate trading knowledge or experience, and a lack of regulatory protection. Traders should not deposit any money that is not considered disposable income. Regardless of how much research you have done or how confident you are in your trade, there is always a substantial risk of loss. (Learn more about these risks from the UK’s regulator, the FCA, or the Australian regulator, ASIC).
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Our overall Forex Rankings report and Directory of CFD Brokers to Avoid are the result of extensive research on over 180 Forex brokers. These resources help traders find the best Forex brokers – and steer them away from the worst ones. These resources have been compiled using over 200 data points on each broker and over 3000 hours of research. Our team conducts all research independently: Testing brokers, gathering information from broker representatives and sifting through legal documents. Learn more about how we rank brokers.
Editorial Team
Chris Cammack Head of Content
Chris joined the company in 2019 after ten years experience in research, editorial and design for political and financial publications. His background has given him a deep knowledge of international financial markets and the geopolitics that affects them. Chris has a keen eye for editing and a voracious appetite for financial and political current affairs. He ensures that our content across all sites meets the standards of quality and transparency that our readers expect.
Alison Heyerdahl Senior Financial Writer
Alison joined the team as a writer in 2021. She has a medical degree with a focus on physiotherapy and a bachelor’s in psychology. However, her interest in forex trading and her love for writing led her to switch careers, and she now has over eight years experience in research and content development. She has tested and reviewed 100+ brokers and has a great understanding of the Forex trading world.
Ida Hermansen Financial Writer
Ida joined our team as a financial writer in 2023. She has a degree in Digital Marketing and a background in content writing and SEO. In addition to her marketing and writing skills, Ida also has an interest in cryptocurrencies and blockchain networks. Her interest in crypto trading led to a wider fascination with Forex technical analysis and price movement. She continues to develop her skills and knowledge in Forex trading and keeps a close eye on which Forex brokers offer the best trading environments for new traders.
