If you’re not familiar with the world of online trading, the term spread betting probably just makes you think about betting on sports. The two are vaguely related as both involve betting on a range rather than a set number. In sports spread betting, you are betting on how many points you think a team will beat their opponents by. For example, you could bet that Cameron Norrie will beat Steve Johnson by three games in the next round at Wimbledon this week.

In stock spread betting, you are betting on whether a particular stock will rise or fall. When you bet the spread in the stock market, you are given two prices: the bid and the ask. The bid is the price that you can currently buy the stock at and the ask price is the price the broker is offering you to sell at. Depending on what you think the market is going to do, you put money on either the bid or the ask price.

Spreading betting is available on more than just traditional stocks. It was introduced to allow people to speculate on the price of gold. It remains popular for both commodities and currencies.

One of the biggest appeals of spread betting is that unlike with traditional stock trading, you don’t have to own the stock in question. This makes it much less expensive to get started. Of course, as with all investing, there is always the risk of losing what you’ve invested.

Another attraction of spread betting is that as with all betting, it is not taxed in the UK. Traditional investments are subject to capital gains tax and stamp tax. Since you don’t own the assets you’re betting on, however, those taxes don’t apply.

If all that sounds intriguing to you, then you could think about finding a broker to set up an account with. Whether it’s trading stocks, commodities or bonds, there will always be one or two companies who try to take advantage of the unexperienced traders. Finding a legitimate, trustworthy broker is essential.

When you are ready to create a spread betting account, this article can help you identify what are the main advantages to look for when choosing a  broker to fit your needs.

What is the margin?

As mentioned above, spread betting doesn’t require you to pay for the full amount of the stock you’re betting on. Instead, you invest a percentage of the total value. This is called the margin. The margin rate varies depending on what it is that you’re betting on and between brokers.

When looking for a spread betting broker to open an account with, do some research on the margins they offer. Some also require an additional deposit to cover any losses beyond the margin, so be aware of that as well.

Check the fees

Reading the fine print is always important (even if no one actually does!) and it’s no different with spread betting brokers. Depending on the type of account you need and the services that are offered, there could be additional fees that you need to consider when setting a budget.

One of the most common fees is for holding bets overnight. Since spread betting is usually done on a much shorter timetable than traditional investing, you’re usually expected to close your bets out within a day.

No matter what, spread betting brokers typically charge far fewer fees than those for contracts for difference (CFD) investing. CFDs are very similar but are generally more expensive and the brokers involved charge commissions and other fees.

Risk management tools

We always hope that every bet will be a winner, but we know that that isn’t possible. Risk management tools allow you to set your acceptable level of risk and mitigate your losses. There are two main types, standard and guaranteed stop-loss orders. 

These work by automatically closing out your bet at a set point. With a standard stop-loss order, the bet is closed when it hits the best available price after the point you’ve set has been reached. With a guaranteed stop-loss order, your bet is closed at the exact price you set.

Most brokers offer standard stop-loss orders as part of the account service. Since guaranteed stop-loss orders require increased precision and close monitoring, many brokers that choose to offer this tool will only do so for an added fee. 

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