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Spread Betting vs Shares Dealing | Differences Between Standard Trading & Spread Betting | City Index UK

The popular image of the active spread better is someone hunched over their screens for umpteen hours a day watching every second-by-second move in a mix of currencies, stock market indices and commodities.

But you can of course take a more relaxed and longer-term approach if you want. Taking this one step further, why would you buy individual shares when you can spread bet on them? First of all there is commission to pay and this amount can vary from very little to quite a lot depending on your stockbroker and the services offered.

The market price for ABC is currently She sells at Now that our investor has concluded the sale of her shares, let's look at what her total profit is.

The spread betting price quote on ABC is slightly wider than the market, so we will use If you look at the maths here it makes perfect sense: If the value of the shares increases or decreases then the spread bet will follow suit.

There's no commission or stamp duty to pay and in addition, because spread bets trade on margin, our investor does not need to tie up all her capital. It is important to remember however that the loss you could make on a bet may exceed the amount of margin that you used to enter into that bet.

This is a feature of leverage margin trading and it means that your losses are magnified and you can lose more than your deposit. Our investor decides to take her profits, closing the spread bet by selling at Her profit in points is There would of course have been some charges incurred along the way as well with this spread bet.

Because she is trading on margin she is effectively 'borrowing' money from the spread bet provider, so there is a daily financing charge applied to her spread bet. This rate is usually based on Libor London Interbank Offered Rate plus a percentage, which will vary from broker to broker. This means her financing will cost 2. If you were going to hold for many months, or even years, of course the cost of those financing charges would outweigh any savings in stamp duty or commissions.

But for short- to medium-term trades, spread betting on shares can be a viable and much more cost-effective option than buying through more traditional means. Disclaimer CMC Markets is an execution-only service provider. The material whether or not it states any opinions is for general information purposes only, and does not take into account your personal circumstances or objectives.

Nothing in this material is or should be considered to be financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. CMC Markets does not endorse or offer opinion on the trading strategies used by the author.

Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein. This website uses cookies.

By continuing to use this website you agree to this. Spread bets and Contracts for Difference "CFDs" are leveraged products and carry a high level of risk to your capital as prices may move rapidly against you. Losses can exceed your deposits and you may be required to make further payments. These products may not be suitable for all clients therefore ensure you understand the risks and seek independent advice.

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