Spread Betting - Financial Spread Betting

Financial Spread Betting

By far the largest part of the official market in the UK concerns financial instruments; the leading spread-betting companies make most of their revenues from financial markets, their sports operations being much less significant. Financial spread betting in the United Kingdom closely resembles the futures and options markets, the major differences being

• the "charge" occurs through a wider bid-offer spread;
• spread betting has a different tax regime compared with securities and futures exchanges (see below);
• spread betting is more flexible since it is not limited to exchange hours or definitions, can create new instruments relatively easily (e.g. individual stock futures), and may have guaranteed stop losses (see below); and
• the trading is off-exchange, with the contract existing directly between the market-making company and the client, rather than exchange-cleared, and is thus subject to a lower level of regulation although the spread betting companies themselves are some of the most regulated entities in the City of London.

Financial spread betting is a way to speculate on financial markets in the same way as trading a number of derivatives. In particular the financial derivative Contract for difference (CFD) which in many ways mirrors the spread bet. In fact a number of financial derivative trading companies offer both financial spread bets and CFDs in parallel using the same trading platform.

Unlike fixed-odds betting, the amount won or lost can be unlimited as there is no single stake to limit any loss. However, it is usually possible to negotiate limits with the bookmaker:

• A "stop loss" or "stop" will automatically close the bet if the spread moves against the gambler by a specified amount.
• A "stop win", "limit" or "take profit" will close the bet when the spread moves in a gambler's favor by a specified amount.

Spread betting has moved outside the ambit of sport and financial markets (that is, those dealing solely with share, bonds and derivatives), to cover a wide range of markets, such as house prices.

In a falling stockmarket, financial spread betting can also be used by investors as a means of hedging against predicted losses in a portfolio of shares.