Are you looking for the best UK forex brokers for spread betting because you want to avoid being taxed on your trades?
We can help you.
Spread betting has been around for a long time, but not all forex brokers have caught up with how popular it is. On top of that, while there are many that offer spread betting, there are plenty of brokers that lack the experience and technology traders really want.
Don’t just sign up to the first spread betting broker you come across. Sign up to a broker that will provide you with the trading conditions that suits your trading style.
Table of contents
Top 10 Best Uk Spread Betting Brokers Of 2021
Here’s our ranking.
What is Spread Betting exactly?
As you can perhaps guess from the name, spread betting is most simply, 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 of many 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 your broker 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 $1000.
These same high risk losses though, can also lead to high risk 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 -9pips loss, you’ll lose $90, and not just the $10 you bet in 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
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 though, 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 though.
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 essentially. 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
Generally speaking, 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.