Tim Bennett talks through a practical example of a spread betting trade, and explains how it works.
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Spread betting is a straightforward and tax-efficient way of leveraging the financial markets. The spread-betting company predicts where a price or score of anything from a share to a commodity to a cricket game will stand at a specified time in the future. The prediction takes the form of a spread – the range between the low and high estimates. You then bet on those prices, ‘buying’ at the high price if you think the price will rise from current levels and ‘selling’ at the low price if you believe it will fall. Spread-betting profits count as gambling wins, so aren’t liable for capital gains tax, but spread-betting losses – which can be high – cannot be set against other gains to reduce tax.
• Entry from MoneyWeek’s Financial glossary.