Benefits of spread betting vs share dealing

Spread betting provides an alternative to traditional shares trading because, while there are similarities between the two, spread betting has exciting additional features.
  • Tax-free profits*
    No UK Capital Gains Tax to pay on your profits and spread betting is also free from UK Stamp Duty
  • No commission fees to pay
    Spread betting is free from commission charges
  • Trade on margin
    Use a small amount of money, known as margin, to control a much larger amount
  • Seek profits in rising and falling markets
    Profits can be made on falling markets (going short) as well as rising markets (going long)
  • Trade on a wide range of markets
    Trade individual shares, indices, currencies, commodities, bonds and interest rates from one account

1) Tax-free profits & no commission

  • With regular shares dealing, you have to pay tax on any profits you make plus stamp duty of 0.5%. In the UK, spread betting is currently exempt from Capital Gains Tax and Stamp Duty*
  • Stock brokers charge commissions to open and close trades. Spread betting is free from commission charges

2) Trade on margin

  • With regular shares dealing, you have to put forward the full amount of the value of the trade, as you physically buy the asset
  • A spread bet is a leveraged product, this means that you only need to deposit a small fraction of the overall value of any trade, known as margin
  • For example, if the margin requirement for a trade is 10% then you would need 10% of the full value of the trade in your account to open the position
  • Leverage is useful for spread betters because it means that they can put their money to use elsewhere
  • It can help magnify your returns with a smaller deposit
  • This work against you as your losses will also be magnified in the same way

Below is an example of the difference between buying 1000 shares at 250 in Barclays and the equivalent spread bet of £10 per point.

Spread betting vs share trading

Remember, if you had made a £100 loss when trading on margin, this will magnify your losses in the same way.

3) Take advantage of falling markets

  • In traditional share dealing, you can only profit if the share price increases. You physically buy a certain number of shares and hope to sell them back later at a higher price
  • In spread betting, you can trade on any price movement be it - up or down. So you can place a spread bet trade and potentially profit on a falling share price - called ‘going short’ - something that isn’t possible in traditional share dealing

4) Short term trading opportunities

  • Where traditional investors might buy and hold physical stocks over months or even years, with spread betting you can benefit from shorter-term market volatility
  • Typically, spread betters look to hold positions over minutes, days and weeks rather than over the longer term as spread betting presents more short term trading opportunities and the low costs also facilitate a short-term trading style

5) Trade on a wide range of markets

  • With spread betting you aren’t just limited to trading shares.
  • With spread betting you have access to a much wider range of markets including commodities, currencies, indices and bonds
  • As you trade all products in £ per point, you aren’t exposed to a currency risk.

We’ve summarised these key differences between spread betting and shares dealing in the table below so you can discover which form of trading is most suitable for you.

Feature Spread betting Shares dealing
Free from Capital Gains Tax* – no CGT to pay on your trading profits Yes
Free from Stamp Duty* Yes
No commission – spread bets are free from commission Yes
Ability to go long – buy and take advantage of rising prices Yes Yes
Ability to go short – sell and take advantage of falling prices Yes
Ability to hedge – go short and mitigate against potential losses in your shares portfolio Yes
Leveraged trading – gain a large exposure for a fraction of the value Yes
Immediate dealing – instant trading both in and out of a market Yes Yes
Access to other asset classes – such as indices, FX, etc Yes
Access to global shares – trade over 9,000 different shares from around the world Yes Yes
Receive dividend and interest adjustments Yes Yes
Physical ownership – benefits include the ability to attend AGMs Yes
Pay overnight financing charge Yes

Summary: There are similarities between spread betting and share dealing, however there are some important differences. Profits from spread betting are tax free and there are no commission charges, these lower costs facilitate a shorter-term trading style. You can “short” the market and as spread betting is a leveraged product you only need to deposit a small fraction of the overall value of any trade.

Check your knowledge:

  1. Name three similarities with share dealing
  2. Name three difference with share dealing
  3. Typically traders of traditional shares look to hold positions short term?
Test drive a trading account
Trade risk-free with a demo account