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Our team has collected come of the best UK forex brokers for spread betting. Several factors were taken into consideration in order to ensure you the best list of spread betting brokers.
- If the broker was FCA regulated
- The platforms of the brokers available for spread betting
- The minimum deposit to start spread bet with the broker
- The assets you can spread bet on with the broker
- The minimum spread on forex charged by the broker
- The maximum leverage on forex of the broker
- The minimum bet accepted by the broker when available
What is Spread Betting exactly?
Financial Spread betting is betting on the spread of a market and how it is going to move. So, given that you are betting on the spread, your investment is not on the actual asset at all. Instead, the value of your money will rise and fall based on your predictions of the spread movement in that market.
Very simply, you are betting on the spread rising or falling. If you bet on the spread rising and it does, then you will make a profit and vice versa.
Which countries allow spread betting?
Spread betting, due to the perception that it is closer to gambling than investing, is not legal in every country. It is however permitted in the UK, Ireland, Macau, Hong Kong, Taiwan, and some other countries.
With that said, you should always verify with the local regulator as well as with the spread betting company first.
Countries where spread betting is currently illegal include the US, some European countries, China, Japan, and Australia. In some Islamic countries too where gambling is illegal, spread betting is also considered to be illegal regardless of whether you have an Islamic trading account.
Why is spread betting illegal in so many countries?
What makes spread betting illegal in some countries is its very high-risk nature. This and the comparisons that some people make between spread betting and gambling all play a role in its legality within some countries.
To illustrate why many consider spread betting to be very high risk, let’s take a look at the following example. Here’s what would happen if your CFD investment loses 10 pips of value.
Losses with standard trading:
- Let’s say you are not investing in Forex but rather in a CFD Stock worth $100.
- If you invest $100 for buying it and it falls to $99.90 (10 pips), you lost only $0.10.
Losses with spread betting:
- Let’s make the same example. However keep in mind that with spread betting you do not buy the whole asset, which is the $100 stock. In fact what happens is that you have to choose an amount of money to “bet”.
- If you bet $1 on the rise when the stock is at $100, and it falls to $99,90, you actually lost $1 per every pip ($1 * 10pips = $10).
- This means that if you would have bet $100, which was the actual value of the CFD stock, you would have lost $1,000.
These same high-risk losses can also lead to profits in other cases.
Forex Spread Betting: How to calculate earnings/losses
To help you calculate your earnings or losses when spread betting, let’s take a look at an example with the major forex currency pair EUR/USD.
Let’s presume that EUR/USD pricing is 1.0940/1.0941
With spread betting, when you bet $10 that the spread will rise, you’ll earn $10 for every pip (0.0001) increment above 1.0941. Let’s say you close the position to 1.0950, you’ve earned 9 pips, equivalent to $90.
But you should be careful because if the spread goes the other way around, you’ll lose a lot of money. In case of a -9pips loss, you’ll lose $90, and not just the $10 you bet in the first place.
In other words, you earn/lose 100% of the investment for every pip rise/fall. 5 pips, for example, equal a +/- 500% on the investment.
There are many spread betting sites where you can find tools and calculators to understand things easily.
Is spread betting worth it?
Spread betting first of all, like any other form of trading, is not without risk to your funds. Only you as a trader who is interested in spread betting can really make the final decision if it is for you or not.
If you are spread betting then you can potentially make big returns within a short period of time, though the all-or-nothing nature of the trading style also means that you could potentially make losses. The margin between significant gains and losses in spread betting is slim. This is something that makes it very exciting and does attract many traders.
However many others tend to avoid this type of account due to its purely speculative and risky nature, and that’s why they usually choose the best lowest spread forex brokers.
Spread betting alternatives
If spread betting has been deemed to be too risky, or even illegal in your country of trading, then you will not be able to engage in spread betting. There is still plenty of other trading types and potential you can engage in.
The recommendation would be to try some other derivative instruments trading. This means that futures, options, or CFDs trading could all be potentially good choices with the exception of the US where CFDs trading is also not permitted.
Check our listing of top forex brokers for more alternatives that may fit your trading needs.
How to choose a spread betting broker
When choosing the best spread betting broker for you, what you are doing is betting on the spread. For that reason, you should try to choose a broker that has the most competitive spreads and the lowest commission in place.
Taxes with spread betting
Spread betting is usually considered to be tax-free in the sense that you will not likely be charged any capital gains tax on earnings and profits you make. Similarly, there would be no rebate possibility in the case of losses.
With that said, it may depend on the country you are spread betting from, and it is always advisable to consult with a professional tax advisor on these matters.
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