Beginner’s guide to spread betting shares

Spread betting is a leveraged product that enables you to stake a certain amount per point movement in a share price. It is a trading option that can multiply your profit or loss based on the size of your stake. 

Understand key concepts about spread betting shares with this insightful guide. Learn how to read the stock markets’ price fluctuations, guide your steps in making your first bet, manage the risks and rewards, and the taxes and spread betting rules you must never forget. 

What does spread betting mean?

Spread betting gets its name from the “spread” or range set around a share price by the broker. For example, the spread could be 10369-10370 for the share price of Tesla. You decide to buy or sell based on whether the price will rise or fall from the spread. If you buy at 10369, you’ll profit 1 point for every point the price climbs above that level. If you sell at 10370 and the price drops, you’ll profit each point it falls below 10370.

Your profit or loss is calculated by multiplying your stake per point by the number of points difference between the opening and closing prices. So if you staked £2 per point and bought Tesla at 10369, then it rose 20 points to 10389, you’d make a profit of £2 x 20 = £40.

The advantage of spread betting over traditional share dealing is you can speculate on price movements without having to buy the shares. You only need to deposit a percentage of the total value of your position. This allows you to gain larger exposures with less capital.

Here’s an interesting read for you: What Are PIPs In Trading? 

Learning how to read the markets

To spread bets successfully, you need to understand what makes share prices move. Monitoring financial news, company reports, expert analysis, and charts are crucial to identifying opportunities.

News events like product launches, earnings reports, management changes, and acquisitions can all impact share prices. It’s essential to keep up with headlines affecting the companies and sectors you want to bet on. Join mailing lists, set Google alerts, and check financial sites regularly.

It would be best to stay updated on analysts’ reports and earnings expectations. This is part of the fundamental analysis. It involves evaluating financial statements, ratios, competitors, markets, and other factors that drive a company’s performance. Strong fundamentals tend to push prices higher over time. So, consider these factors when doing your research about your preferred shares. 

Technical analysis interprets price charts and trading volumes to spot trends and patterns. Indicators like moving averages and MACD can identify entries and exits. Look for momentum, breakouts, support and resistance levels, and chart formations signalling potential turns.

It also helps to specialise in a sector where you have in-depth knowledge. For example, a tech analyst could have an edge spread betting tech stocks versus an unfamiliar sector like utilities. The learning curve is steep, so focus on what you know best. 

Consider giving this a look: Thematic Investing: Investing In Technology

Placing your first spread bet

Once you understand spread betting and have studied the markets, it’s time to start trading. We’ll walk through the basic steps to place your first bet.

Step 1: Open an account

Various financial brokers offer spread betting, but a popular trading platform, markets.com, is worth considering. You can open a real or demo account. We offer customisation of the trading platform to fit your individual trading needs. From easy-to-use demo accounts for beginners to advanced MetaTrader 4 and MetaTrader 5 platforms for seasoned traders. 

Step 2: Find your opportunity

Use your market analysis skills to identify a trading opportunity. This could be a breakout to new highs, support bounce, earnings reaction, or other catalyst you expect to move the share price. 

It is also imperative that you define your entry-level, upside target, and stop loss in advance to ensure a clear understanding of your potential gains and losses. By doing so, you will be able to make informed decisions and minimise your risks while maximising your profits.

Step 3: Place your spread bet

Log into your spread betting platform and find the shares you want to bet on. Enter the stake per point you’ll risk, whether buying or selling, and any stop loss or take profit orders. Confirm the details are correct before placing the bet.

For example, you think Tesla will break resistance at £360 and rally to £380 following substantial delivery numbers. You stake £5 per point to buy at 360 with a take profit order at 380 and stop loss at 350. This limits risk to £500 while targeting £1,000 profit.

Step 4: Monitor your Bet

Once your position is open, watch how the share price moves—your profit/loss updates in real-time. If hitting your take profit or stop loss, the bet automatically closes. You can also close manually anytime. Don’t overexpose yourself and use stop losses.

Step 5: Evaluate Performance

Keep a trading journal to review your closed bets. Analyse your winning bets and losing bets to improve. Focus on setting clear targets/stops, managing risk, and avoiding emotional decisions. This will refine your process for better spreads.

With practice, you can become adept at spread-betting shares. It combines market analysis with measured risk-taking. Always spread bet responsibly within your means. With the right approach, you can enjoy the thrill of trading while managing your risk.

Managing your spread betting risk

Spread betting provides leverage, which can boost profits and magnify losses if you aren’t careful. Effective risk management is crucial to survive the ups and downs. Here are some tips:

Always use stop losses and take profit orders, as it can automatically limit the risk on each trade. Determine these levels before placing your bet so you don’t overexpose yourself. Adjust stops to lock in profits as the price moves favourably.

Limit your position sizes so no single bet risks more than 1-2% of your account value. This ensures one loss won’t wipe you out. Also, you may limit your overall exposure across all open bets to 10-20% maximum. You can increase this range depending on your knowledge and trading strategy.

Only trade with disposable income you can afford to lose. The high leverage means losses can exceed your deposit. Deposit more funds to meet margin requirements or close losing positions before forced liquidation.

Risk management separates successful spread bettors from gamblers. Always employ stop losses, reasonable position sizing, and overall exposure limits in your trading.

Read this article for more insights: A Few Things To Consider When Making A Deposit

Taxes on winnings and spread betting rules

Unlike stocks, spread betting profits are exempt from capital gains tax in the UK. However, it still must be reported as taxable income. Keep accurate records of your trading profits/losses.

Follow all rules and legislation for spread betting. For example, insider trading on non-public information is illegal. This means you cannot make any bets based on information unavailable to the public. Additionally, it is prohibited to bet on share prices that you have an influence over. This includes shares of companies you work for or have a significant stake in. To avoid any legal trouble, it is important to understand the broker’s terms and conditions before engaging in spread betting.

Regulated brokers must segregate client funds in secure accounts. Your funds will be kept separate from the broker’s funds. In case of any financial difficulties the broker faces, your deposits will remain safe. One way to verify if a broker operates under such regulations is to check if they are licensed by the UK Financial Conduct Authority, a regulatory body that enforces strict trading standards. By choosing a regulated broker, you can have peace of mind that your funds are protected and that you are dealing with a trustworthy entity.

To put it briefly

In this beginner’s guide, we covered key concepts like spreads, leverage, and stop losses in share spread betting. You learned market analysis foundations, risk management essentials, and how to place your first spread bet.

While rewarding, spread betting has risks due to its leveraged nature. Refine your strategy by learning technical and fundamental analysis. Employ smart risk management using stops and exposure limits. Keep advancing your knowledge through practice, research, and guidance from professionals.

With the right diligent approach, spread-betting shares can offer exciting trading opportunities beyond conventional stock investing. 
 

Spread bet popular company shares on markets.com 

Spread betting is available on our trading platform based in the United Kingdom. We also offer a contract for difference (CFD) trading option. You may be wondering about the difference between spread bets and CFD contracts. Spread bets have fixed expiration dates when placed, and CFD contracts have none.

Whatever trading style you prefer, we will help you achieve your goals. Our platform offers live customer service that will accompany you throughout your trading. 

Start navigating the financial markets now by signing up for an account to gain instant access to our offerings. Elevate your trading to professional levels with our advanced platform!

When considering “CFDs and Spread Betting Shares” for trading and price predictions, remember that trading CFDs and Spread Betting involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.”