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Spread Betting and Using Margin

Understanding Financial Spread betting

Financial spread betting has many benefits for trading stocks, indices, forex and commodities. Firstly, dealing costs are non existent because the spread betting company allows free dealing and they take their commissions from their quoted spread. It also provides the benefit of being free from certain taxes in the UK.

Spread betting comes with high risk to your capital. You could lose your deposit if you do not trade carefully, or have a solid money management plan. Seek financial advice if you are new to trading.

New Spread Betting and CFD Margins

With new regulations ever increasing from the EU (in this case the ESMA), spread betting as a trading method has undergone some huge changes in recent months.

We wont bore you with the full background on the reasons these new margin changes have been enforced. The short version is: to stop inexperienced traders from over-leveraged trading. We have our own views on this silly law, we all know the risks, but here is not the place to get into that!

What Are the Changes for Spread Betting?

In a nutshell, unless you classify as a professional trader you will have less leverage and have to deposit more margin to maintain your positions.

This means if your spread betting account balance is small then you’ll have to reduce your stake sizes. Margin rates have increased, substantially.

Is There a Way Around This?

Fortunately yes! You have two options to continue trading with higher leverage, as long as you fully understand that by trading you risk losing your capital.

1. Meet the conditions to qualify as a professional trader.


2. Open an account with a trusted broker in an area which the EU has no influence.

As most of us won’t meet the first option, then let’s go to option 2.

You’ll discover that you still get high leverage in certain countries by using CFD trading, not spread betting.

IC Markets is Australia’s best regulated Forex broker, and also one of the largest in the world by volume.

When you open an account here you can still benefit from 500:1 leverage.

In addition to their world class ECN forex platform they provide CFD trading for world indexes such as the Dow Jones and Dax, commodities and energy like Oil, metals such as Gold, bonds and more. They are fully regulated with the Australian Securities and Investments Commission (ASIC) and have glowing reviews from happy traders.

IC Markets aren’t the only company you can try, but to be honest, you should really keep your capital in a well regulated country, rather than some dodgy bucket shop operating from Cyprus or a far flung little Island somewhere.

In addition to higher risks involved with high leverage the other main downside is tax. As you are probably aware spread betting in the UK is free from income and capital gains tax. CFD’s are not.

So before you go all out for IC Markets take some time to study the tax implications and also understand the risks of high leverage trading.

With high leverage you should have a robust money management strategy so you don’t lose your investment. If high leverage and the tax implications of CFDs put you off, then you should remain classed as a retail trader and continue trading with the new margin rates at one of the many spread betting companies in the UK.

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In the UK all profits from spreadbetting are tax free. This is a big advantage for traders who may have already hit their maximum amount of profit before capital gains tax is applied.

Online spread betting of financial markets is done in a very similar way to a standard broker, and the online trading platforms are second to none. Each stock or index will quote you a buy or sell price, you simply buy or sell the price with an amount per point. For example you could sell the Dow Jones Index at £10 per point at 10550. If the Dow Jones traded down to 10500 you would buy the Index to close the spreadbet. Your profit would be 50 points x £10 = £500.

Spreadbetting carries the same amount of risk as any other trading method. So it always wise to try out a fully functional demo account from a company first.

Financial Spread Betting was developed in the UK and is NOT available in all countries. For example, it is NOT available to USA residents. Some countries offer spread betting and other countries allow residents to have an account with a UK spread betting company and conduct business on-line. Please check your local laws and tax regulations.