Spread betters – know your rights!

Spread betting the direction of, say, Tesco - rather than buying Tesco shares and waiting for the price to rise - has some serious advantages. You don't pay stamp duty on the purchase at 0.5%, for starters. There's also no capital gains tax to pay on profits.

Better still, you may find that the spread you suffer to open and close a position works out cheaper than paying your broker 'round turn' commissions of, say, £10 per trade. Finally, there's margin the fact that you only put down a small percentage of your total exposure up front in the form of an initial deposit.

However, as a spread better you also lose some advantages that shareholders take for granted. First off, spread bets don't pay dividends. Next, normal shareholders' rights, such as attending annual general meetings and voting on important matters that affect the company, don't apply either. The same goes for any extra perks discounted utilities for example that come with shares.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Perhaps the most important difference is that, unlike a shareholder who can simply opt to ride out any losses by not selling up a spread better has to fund losses daily by potentially chipping in more money as and when demanded. And the leverage offered by spread bets means these losses can rack up pretty fast.

So while spread betting is a faster and cheaper way to play equity markets for many investors, make sure you understand the cons as well as the pros before you dive in.

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.