What is spreadWhat are trading spreads? In online trading, spread is the d... More betting?
When a places a bet on the priceWhat are value stocks? A value company is a company that app... More movement of a , this is called spread betting, also known as spread trading.
Spread betting does not involve the actual purchase of an asset. Instead, an will bet on whether the priceWhat is price? The price is the measure of the value of good... More of the asset is likely to rise or fall.
It is comparable to any other bet on the outcome of a certain event.
How the spread betting works
The spread betting company will offer a and for the asset and the traderWhat is a trader? A trader is a person who buys and sells... More will bet on the direction of price.
If you believe that the underlying asset upon which you are placing your bet is going to fall in price, you place a sell bet. Conversely, if you believe that the underlying asset is going to go up in price, you place a buy bet.
The movement of the asset is measured in points. As the investorAn investor is someone who spends capital with the expectat... More, you set the value of each point when you enter the bet. To close the bet you simply place an opposing orderWhat is a trade order? In trading, an order can be defined... More to the original buy or sell bet, pocketing the difference in points.
For example, let’s pretend that Samsung is currently trading 120 – 120.5. Investor A believes that Samsung is going to rise and places a buy bet at 120.5 for £10 a point. Investor B has the opposite view and believes that Samsung is going to fall and places a sell bet at 120 for £10 point.
In the end, Samsung rises to 125 – 125.5. Investor A is correct and places an opposing sell bet at 125 in order to make his £45 profit (4.5 x £10 = £45). Meanwhile, Investor B decides to cut his losses and close the position at 125, taking a £50 loss (5 points x £10 = £50).
Taxation
Spread betting is tax-free in the UK and a number of other European countries. Profits are not subject to income tax or capital gains tax. On the downside, losses cannot offset any gains on the tax return form.
