*Please note that spread betting is only available to clients from the UK and Ireland and the tax benefits are subject to the clients jurisdiction
The economy is changing, and no one is quite sure how everything will look once the dust of change settles. The move to working from home, concerns over mass resignations, rising inflation, the cost-of-living crisis, and other issues are all coming together to make our financial world seem more unsteady than it has since 2008. On top of everything else, there is the instability brought on by the piecemeal introduction of Brexit.
With the changes facing businesses and individuals due to the slow rollout of Brexit, finding ways to diversify income streams is becoming a concern for more and more people. Trading or investing in the stock market is one avenue that many people consider before realising the expenses it entails. Not only do you generally have to risk a substantial amount, but there are also the broker fees to consider and the high taxes on any earnings that you make from your trades.
One alternative to traditional investing is spread betting, a way of short-term trading. Spread betting allows you to speculate on the stock market without having to pay taxes on any of the profits you make. This article will explain what spread betting is, how you can get involved and why it does not need to be taxed.
How does it work?
Spread betting does not have too much in common with the sports betting type that shares its name.
Spread betting is about speculating on the stock market, without having to actually buy any stocks, through derivative trading on products like gold, oil or forex pairs. The trading broker will provide two prices for a stock or other derivative commodity, with currencies and gold both being amongst the most popular. One price is slightly higher than the stock’s current price and one is slightly lower.
If you think that the stock is likely to rise, you buy in at the higher price. If you think the stock is going to decrease in value, you buy in at the lower price. If your prediction is correct, you make a percentage based on the number of points the stock rose or fell and the amount of money that you had placed on the bet.
This allows you to make money from a stock doing poorly as well as from stocks doing well. It is also fast paced, with most spread betting deals having a set deadline within a single day.
When you are ready to open a spread betting account, find a broker that offers you the option to open a demo account first. A demo account will allow you to practise spread betting and learn how that broker’s software works before you put any of your own money in. It is a helpful service that lets you make your first mistakes and learn the associated risks.
Reasons to consider spread betting
As we mentioned above, one of the biggest reasons to consider spread betting is that any winnings you make are not taxed. As necessary as taxes are, they do eat into profits considerably. During times like these, any unexpected loss or extra chunk taken out by the government hits harder.
Another reason why spread betting is popular is because it doesn’t require the same financial investment that traditional investing does. Since you’re not actually buying any assets, the cost is typically much lower. This doesn’t mean there is no risk involved, contrarily, just that it is takes less money to get started.
Lastly, there are tools in place that you can use to prevent your losses from being too much to handle. A stop-loss order allows you to set a price that your bet is closed at. This way, you can’t lose more than you’re comfortable with losing.
Where is spread betting tax-free?
We’re so used to having to pay taxes on everything that when something is presented as tax free, we get a bit suspicious. There must be a catch somewhere, right? For once, there is no catch and no legal grey area either. Spread betting on the stock market is tax free because it is classed as a form of betting, not as a type of investing. Please note that spread betting is only available to clients from the UK and Ireland and the tax benefits are subject to the clients jurisdiction. So, just like when your bet on Norwich City F.C. pays out if your spread bet pays out then you aren’t taxed on your winnings.
The only potential catch is that spread betting is quite tricky and never a guaranteed thing. Like all trading activities, you’re at the mercy of the market, and as we’ve all seen in recent years, the market can be volatile and surprising and lead to great losses for many unexperienced traders.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread betting and/or trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Marketing for CFDs and spread betting is not intended for US citizens as prohibited under US regulation.
