Spread Bet Stocks: Explained

Spread Bet Stocks: Explained

  • Posted on 2222-0707-2021
  • by Gareth McCauley

Spread betting is a strategy that can be applied to many financial instruments: forex, indices, commodities, cryptocurrencies, share prices, treasuries, and blue-chip stocks. The philosophy behind it is simple: bet on which direction you think the market will go (high or low) and you will either make a profit or suffer a loss, depending on whether the market moves according to your wager.

There have been punters who earned millions of pounds and dollars after they spread bet on stocks and shares of Facebook and blue-chip companies like Apple, Alphabet (Google) and companies in the Dow Jones Industrial Average. As simple as the spread betting sounds, however, it takes experience and knowledge of how markets affect each other to fully capitalise on the strategy’s massive potential to generate earnings.

Let’s begin with the basics: below are the key things beginners need to know about spread betting on blue-chip stocks.

Spread Betting is Tax-Free

Spread betting in the UK is tax-free. It’s one of its biggest advantages over traditional investments where you have to pay stamp duty when you buy and sell shares, as well as capital gains tax (CGT) for any profits you make. This means that with spread betting, you can speculate without paying taxes before and after you close your bets. Best of all, you can take home all of your earnings.

Of course, you still need capital to sign up for a membership with a forex broker to access an online trading platform. You need to choose a broker and platform that allows spread betting on the financial instruments you’re interested in speculating.

Our trading platform at Fair Forex, for example, allows traders to spread bet on 564 stocks including blue chips listed on the Dow Jones Industrial Average (DOWJONES30), Nasdaq-100, and New York Stock Exchange (NYSE). We also host trading in 47 forex pairs, 16 indices, 39 commodities and 36 cryptocurrencies. Check out our Account Types for details.

No Need to Buy Stocks

Spread betting on stocks is one way to study market trends without incurring massive losses, and this is because you don’t need to buy stocks to spread bet on blue chips. All you have to do is accept the spread your broker offers.

Take note that commissions are not deducted from any earnings you generate from spread betting. The remuneration for the platform and trading services is included in the spread (the amount is minimal, however, because of the tax-free privilege for spread betting).

Learn When to Buy or Sell a Position

If the above discussion of buying, selling and spreads confused you, here’s a quick cheat-sheet you can use as reference:

  • When you do spread betting, you agree on the spread your broker offers.
  • The spread is the difference between the buy and sell prices.
  • If you believe the price of blue-chip stocks or shares will rise, you buy or ‘go long.’
  • If you believe the price of blue-chip stocks or shares will fall, you sell or ‘go short.’

The key to succeeding in spread betting is knowing when to buy, sell or close a position. It will be advantageous if you are in tune with the market of the blue-chip company you bet on. You also need to pay attention to the activities in the peripheral markets that might affect the performance of the blue-chip stocks you’re speculating on.

Find a Tight Spread

A good spread is a tight spread, which means that the difference between the buy (also called the offer) and sell (also called the bid) price is minimal. You can only make a profit in spread betting when the change in the underlying price (as it moves up or down) exceeds the amount of the spread. Hence, the tighter the spread, the faster it is for you to earn a profit.

How Spread Betting Works

Here is a quick review of how spread betting works:

Your broker will quote a spread for a blue-chip stock. If the underlying price of a stock is £101.5, the spread will likely be £100/£103 If you think the price will fall lower than £100, you can sell at this amount. Likewise, if you think the price will increase, you will buy at £103.

After deciding between buying or selling, you can then specify your bet per point movement. Suppose you decide to take a short position and bet £20 for every point the stock falls below £100. The £20 is your stake. If your prediction comes true and the stock price falls to where the sell/buy price is at £82/£85, you will earn a profit of £300.

Equation: (£100 – £85) x £20

If the reverse happens and the stock rises by 15 points, then you will lose £300.

Place Your Bets on Fair Forex

There are other things to consider as well, like margined or leveraged trading, margin calls, what to do when presented with a wide spread and more. Fair Forex is the best place to learn these as you’ll gain access to free trading materials and tools, as well as professional support from experienced spread bettors and traders via Fair Forex’s telegram chat group.

Learn to spread bet stocks with the best broker and online platform in the business. Register with Fair Forex today.