Under UK law, there is no stamp duty or capital gains tax on an individual’s betting profits although betting duty has to be paid by the spread betting provider (at 3% on ‘net stake receipts’ basically gross profits from bookmaking). Spread betting can be an easy and cost effective way to trade as the customer does not pay fees (unlike say equity trading). This is because the spread betting provider makes its money from the difference between the bid and offer prices. Spread betting also lets the customer speculate on a whole range of markets that would otherwise be difficult to access. It also allows trading on markets with a different currency while not incurring exchange rate risk. For instance utilising a spreadbet to acquire exposure to say, the Dow Jones means that you can bet in pounds per point, removing the exchange-rate risk in the process – something well worth doing with the present wild currency movements.

The advantages of spread betting are as follows:

• Income and Capital Gains Tax-Free. Any gains you make are free from UK capital gains and income tax.
• No Commission or Stamp Duty to pay. No direct commission or brokerage fees are payable, you only pay the bid-offer spread.
• Trade many markets and Instruments from one account. A single account provides you access to global markets including shares, indices, currency pairs, commodities, interest rates and options. Ever fancied trying to catch one of those big moves in a USA technology stock like Google or Apple? Or perhaps you’d like to get exposure to the racy India 50 stock index? Spread betting in this respect opens up a whole new world of financial markets including those in the USA, Europe, Australia and Asia which were not accessible to UK traders before.
• Ability to go Long or Short i.e. Buy in anticipation of a rise or sell in anticipation of a fall. The ability to profit from a falling as well as a rising market is a key advantage of this trading product.
• Trade on Margin i.e. you only deposit a % of the value of the trade.
• Profits are theoretically unlimited. The ‘more right’ you are, the more you will gain.
• Out of Hours trading. You can ‘deal’ after-hours or when traditional markets are closed. In practice you can deal 24-hours a day for the main indices. Even at 3a.m! Most stockbrokers don’t take kindly to being woken at this time of the morning!
• You can spreadbet for very small stakes and spread betting is great for opening and closing smaller position sizes.
• No exposure to currency risk. This means that you don’t have to worry about currency movements when you deal in overseas shares. You are able to spreadbet on a wide range of financial markets or products on one platform using one currency – £, $ or €.
• Spread betting gives you control. That means -:
  1. Set your individual market entry and exit points
  2. Manage your own positions
  3. Set you own Stop Levels
• Immediate execution of your orders at the quoted price.
• Different Order Types e.g. Daily, Quarterly.
• The availability of Guaranteed Stop Orders.
• Internet trading with customisable trading screens.
• Complete documentation suites including:
  1. Bet confirmations
  2. Current Positions
  3. Daily and Monthly Statements
• You can get a credit account, depending on your experience and credit worthiness. This saves the hassle of sending them a cheque each time you make a bet.
• Finally, there is no commission to pay! They make their money on the ‘spread’ of their quotation.

Nobody likes to pay taxes. A key advantage of financial spread betting is that profits are tax-free unlike other forms of trading such as shares dealing, options, futures, covered warrants or forex apart. That’s right; profits from spread betting are free from income tax, irrespective of the extent of your gains.

Apart from this being a huge benefit in itself just imagine the ‘savings’ in time and paperwork which can be a nightmare to deal with. Of course this only applies if you actually make profits and likewise you won’t be able to offset spread betting losses against taxes but it is still a nice position to be in.

Compare that to shares dealing; if you went to a traditional broker you would have to pay stamp duty on the shares you have bought as well as broker charges plus you will also have to pay Capital Gains Tax should the value of your investment increase (isn’t that why you bought the shares in the first place!?). Spread betting on the other hand is completely exempt from CGT tax; as you don’t own the stocks, there is no stamp duty to pay. Most spread betting providers don’t charge direct commissions for trades; instead they widen the bid-offer spread a little.

Incidentally, there are other non-obvious advantages to spread betting: since you are not buying a physical asset you do not have to worry about custody charges. In years gone by, when someone acquired a share, they would also get a share certificate, proofing their title of ownership of that share. Nowadays, stock brokers still have to hold such shares for invested shareholders, but they normally charge investors a small fee for this service. Obviously, since spread bettors are not trading physical shares, this isn’t even an issue and there are no custody charges to worry about. You are simply speculating on a financial instrument which mirrors the price of an underlying asset but you don’t have to pay a broker for safe keeping.

Basically if you set your bets at exactly the same level you would buy shares then buying shares makes no sense. You have capital gains, less real time information – you never know how much you really own until you place a sell order, you generally have less features, and you obviously tie up far more money. With a sensible approach and trades planned exactly as you would with shares there really is no argument in favour of holding shares over spread betting especially for short-term trading.

The workings of financial spread betting are also very simple to understand – you simply have to bet on whether a market is going to rise or fall and then once you have a decided on a direction you can proceed to place either an ‘up’ (go long) or ‘down’ bet (go short).

PEOPLE DON’T WANT TO PAY STAMP DUTY… THE STAMP DUTY IN THIS COUNTRY IS COMPLETELY OUT OF LINE WITH WHAT THE REST OF THE WORLD PAYS.