Online trading in the UK is widespread, and it is essential to have a plan before kickstarting your activities. While planning, you should factor in potential gains to determine whether your investments are paying off. Most importantly, include capital gains tax deductions made on profits earned and reported to the HMRC.
Note that online trading in the UK is considered a business venture, attracting tax deductions. Since many investors are earning good profits trading various assets, some are looking for ways to maximize their earnings by considering tax-free trading activities. Fortunately, spread betting is the only way to trade tax-free in the UK’s financial market since it is classed as a speculative bet rather than an investment.
Below, we take you through the meaning of spread betting and how it works. Besides being a tax-free activity, you will also understand other benefits that will influence your decision.
What is Spread Betting?
Spread betting is a derivative trading method whereby you get to speculate on financial assets’ price movements without taking ownership of the assets. These assets include forex, shares, commodities, indices, etc. Simply put, spread betting is like betting on a range of possible outcomes based on the underlying data.
Note that spread betting is leveraged, meaning that you only get to deposit a small capital called margin to open a larger position. Margin trading is risky since you can either gain huge profits or massive losses. Therefore, before applying leverage when spread betting, ensure you are confident with your strategy to avoid losses.
To spread bet, you need the best spread betting broker in the UK that meets your requirements. In most cases, the best options for spread betting are forex brokers with a separate spread betting platform, and there are plenty of them. Note that it is not easy to find a suitable broker for spread betting, and you should consider expert recommendations in this list if you have limited time for research.
Benefits of Spread Betting
As mentioned earlier, spread betting gives you an opportunity to get full exposure to an asset with a small deposit. Plus, it is the only tax-free activity in the UK’s financial market, allowing you to keep all the profits earned. To help you decide whether spread betting is worth trying, here are more benefits you need to know.
Go Long or Short
Spread betting is a flexible activity that allows you to take advantage of the market, whether an asset’s price is rising or falling. Instead of buying an asset, you will place a bet on the direction in which its price will move. For instance, if your research on a tradable instrument makes you believe that an asset’s value will rise, then you will go long or open a long position. Contrastingly, if you believe the market’s value will fall, take a short position or go short. The difference between the asset’s value at the beginning of a trade and when it closes will be your profit or loss.
Explore a Wide Range of Assets
Unlike purchasing an asset and taking ownership, spread betting allows you to trade multiple assets at a go. You can place your bets on shares, forex, commodities, indices, etc., and limit incurring massive losses depending on an asset’s volatility or market conditions.
Hedge an Existing Position
If you have an existing share portfolio, you can hedge your position by spread betting on an asset whose value is moving in the opposite direction of your current portfolio. This way, you can curtail risks and limit massive losses since the loss incurred on one position will be offset by the profit brought about by the other.
Now that you understand the meaning of spread betting and the benefits that comes with it, you should try it out using the best broker. However, ensure you select an asset you are familiar with before opening a position. Conduct thorough market research and analysis for solid strategies, especially if you consider the application of leverage.
When choosing a suitable broker in the UK for spread betting, you should first consider your safety. This means you must only settle for a broker regulated by the Financial Conduct Authority (FCA). If you are always on the move, consider a spread betting broker with a mobile app to help you easily manage your positions on the go.