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How spread betting works

Tim Bennett talks through a practical example of a spread betting trade, and explains how it works.

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Spread betting

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.

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One Response

  1. 18/09/2014, dfl3tch3r wrote

    This is where traders can help educate investors….For instance investing would seem to most, less riskier than trading. I would say not so! A trader knows exactly what his risk amount is to the nearest penny by the use of a stop loss. Because of this he can use leverage in order to run profits and avoid chasing losers. A technical trader does not care which company he trades so he’s not emotional about the stock to begin with. A trader usually has a ‘system’ so he avoids Recency Bias. A trader isn’t looking for the cheapest price or ‘bargain’ stock; if he’s a technical trader he’s simply interested in the pattern, and so forgets the cheapest price and waits for a trend change instead. Not always but more often a trader is least affected by emotions. Apply this to investing and you’ll do well.

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