GUIDE TO SPREAD BETTING: Spread betting has exploded in popularity in recent years as an efficient and tax-free way to speculate on the stock market. Here we look at how spread betting works and how to mitigate the risks. Spread betting is a powerful but also a dangerous tool. We also look at spread betting techniques and trades.

Bets can be made against a wide variety of indices, shares and other instruments such as interest rates, currencies, commodities, options and futures.

Spread betting also enables investors to go 'short' on all these markets.

Conventionally, a trader might sell an instrument they do not own in the hope that they can settle the trade at a cheaper price due to a fall in the market value, thereby making a profit. By spread betting, investors can replicate this effect with minimal effort and expense.

Spreadbetting is also free of the normal stockbroker's commission. Spread betting companies typically charge their clients solely through the dealing spreads they offer. In other words the price at which you can 'buy' is higher than the price at which you can 'sell', and this is where the company makes its own profit.

The returns can be huge and moreover they are free of tax. However, as with all geared products there is a high level of risk and you could face significant losses if you are not careful.

WHAT IS SPREAD BETTING?

Spread betting enables you to take a view on the likely outcome of an event, or a financial movement, and to back your judgment by either 'buying' or 'selling'.
For example, a common bet is on the FTSE 100, the index that measures the collective performance of the 100 biggest companies on the London Stock Exchange. You can bet on whether you think the index, also known as the 'Footsie', will rise or fall, over a period ranging from a single day to several months.