What Is Spread Betting and How Does It Work?

Spread betting lets you speculate on market movements tax-free. Learn how it works, key terms, benefits, risks, and how to manage exposure.

Spread betting is a financial trading method that allows you to speculate on whether markets will rise or fall, without owning the underlying asset. Popular in the UK for its tax-free status, spread betting offers flexibility, but comes with high risk due to leverage.

This guide explains what spread betting is, how it works, key concepts like leverage and margin, and how to manage risk when placing trades.

What Is Spread Betting?

Spread betting is a way to bet on the price movement of a financial instrument (like a stock, index, or currency) without owning it. Instead of buying or selling an asset, you wager on whether the price will go up or down.

Your profit or loss is based on how much the market moves in your favour or against you, multiplied by your stake per point.

How Does Spread Betting Work?

You’re given two prices by the spread betting provider: the bid (sell) and offer (buy) price. The difference is called the spread.

You choose:                                    

  • The direction (buy/‘go long’ or sell/‘go short’)

  • The stake size (e.g. £5 per point)

  • The duration of your trade (open-ended or fixed term)

You then make or lose money depending on how far the market moves relative to the price you opened at.

What Do ‘Long’ and ‘Short’ Mean in Spread Betting?

  • Going long means you expect the price to rise. You make money if the market goes up.

  • Going short means you expect the price to fall. You make money if the market drops.

Both allow profit from market movements in either direction.

What Is Leverage in Spread Betting?

Spread betting is leveraged, meaning you only deposit a small percentage of the trade’s total value (called margin), but your gains or losses are based on the full market exposure.

Leverage can amplify profits, but it also amplifies losses, making it a high-risk strategy if unmanaged.

What Is Margin in Spread Betting?

Margin is the deposit required to open and maintain a position. If your trade moves against you and your account falls below the maintenance margin, the provider may ask for more funds or close your position (a margin call).

Margins vary depending on the market and the broker’s risk policies.

Key Features Explained

  • The spread: The difference between the buy and sell price, set by the broker.

  • Bet size: How much you stake per point of movement (e.g. £10 per point).

  • Duration: Trades can be left open indefinitely (subject to rollover charges), or tied to specific futures contracts.

Example of a Spread Bet

You believe the FTSE 100 will rise. The spread is 7,200–7,202.

You buy at £5 per point at 7,202. The index rises to 7,250.

You close your trade. Profit = (7,250 - 7,202) x £5 = £240

If the market had dropped to 7,160, you’d lose (7,202 - 7,160) x £5 = £210

What Are the Benefits of Spread Betting?

  • Tax-free profits (no capital gains tax in the UK)

  • No stamp duty

  • Profit from both rising and falling markets

  • Access to global markets from one account

  • Use of leverage increases exposure with less capital

What Are the Risks of Spread Betting?

  • High losses possible due to leverage

  • Volatile markets can trigger margin calls or stop-outs

  • Charges and spreads can eat into profits

  • Emotion-led trading increases risk

  • Not suitable for long-term investing

It’s classed as a high-risk activity, and many retail investors lose money.

What Markets Can You Trade?

Spread betting covers a wide range of markets, including:

  • UK and global shares

  • Stock indices (e.g. FTSE 100, DAX)

  • Forex

  • Commodities (e.g. gold, oil)

  • Cryptocurrencies

  • Bonds and interest rates

How to Control Your Level of Risk

  • Use stop-loss orders to cap downside

  • Set guaranteed stops to avoid slippage

  • Trade with small stakes relative to your capital

  • Avoid overleveraging

  • Limit the number of open trades

  • Keep up with economic news and technical analysis

A clear trading plan and strict discipline are essential.

How to Make Informed Choices

Start with:

  • A demo account to practise without risk

  • Research the broker's fees, platform, and risk tools

  • Understand how leverage and margin impact exposure

  • Learn technical and fundamental analysis basics

  • Only trade with money you can afford to lose

If unsure, seek advice from a regulated financial adviser.

Final Thoughts

Spread betting offers flexibility, tax-free profits, and access to a wide range of financial markets—but it comes with significant risk. Understanding how spread betting works, managing your exposure, and developing a solid trading strategy are essential if you want to avoid costly mistakes.

It's best suited to experienced traders, but those willing to invest time in learning can use it as a powerful short-term trading tool. Always treat it as a speculative method, not a guaranteed income.