Financial Spread Betting Five years ago, financial spread betting was a City traders’ plaything. But, says Angus McCrone, times have a changed Sometimes quality products are held back by an unattractive name. The Lincolnshire seaside resort of Skegness, Thailand’s Phuket and the Greek island of Lesbos would all probably get more visitors were it not for their names. The same is true of financial spread betting. Its clumsy moniker suggests a complicated, dangerous form of gambling, with no relevance to the ordinary, sensible investor. Financial Spread Betting & Playing the Financial Markets That is a pity, because lurking behind the ‘f’, ‘s’ and ‘b’ word is one of the most flexible methods in the world for playing the financial markets. It is a tool for the speculator, the short-term investor and also, on occasion, for people who want to hedge a financial
exposure they already have. That is not to deny that there are risks. Spread betting can result in big losses. It is essential for newcomers to read up carefully in advance and then to bet with small stakes. No one should go into spread betting unless they have some money to spare.
There are five specialist bookmakers. IG Index, the largest, floated on the stock market last year as IG Group and now commands a £250 million valuation. The others are City Index, Cantor Index, Financial Spreads and Spreadex.
Some 50,000 people have accounts with one of these bookies. Each account allows positions to be taken in the FTSE100 index, the Dow Jones and many others, in hundreds of individual shares, in bonds, in
currency rates, commodities and options. Financial Spread Betting - Two Choices Conventional share trading limits the investor to two choices: you can either buy a particular share, or you can sit on your hands. With financial spread betting, you have three choices – you can go long of a share, you can go short, or you can sit on your hands. In addition, any profits made on spread betting are not liable for UK capital gains tax, and investors can usually place a bet without meeting more than 20 per cent of their exposure in cash up-front. Say you were bullish on the stock market and wanted to benefit from a rise in the FTSE100 over the next few months. You could telephone your bookmaker and make an “up-bet” on the Footsie in June. If you risked £5-a-point, and the spread quoted when you called was 6300-6312, you would stand to make £5 in profit for every point by which the Footsie exceeded 6312 at the expiry of the bet in June. Financial Spread Betting & FTSE If the June FTSE expired at 6432, you would make £600 profit (6432 minus 6312, times £5). But if the market went the wrong way you would make equivalent losses. If June FTSE expired at 6192, your losses would be £600 (6312 minus 6192, times £5). In practice, most spread-betting customers do not hold their bets all the way till expiry. Spread bets can be “closed out” at any time – even on the day they are opened. Financial spread betting has been around for 25 years, but it was only a few years ago, when bookmakers started to offer bets on individual shares, that its popularity began to rocket. In the last 12 months, volumes have grown by more than 100 per cent. Financial Spread Betting And Michael Murray Michael Murray, at IG Index, says: “A decade ago, 75 per cent of our clients were from the City. Now, 70 per cent are from outside the Square Mile – lawyers, doctors,
dentists, bakers, butchers.” Ashley Tatham at City Index has noticed another change: “A few months ago, the majority of spread bets on shares were made by people looking for that share price to rise. Now, more than 20 per cent of trades are “down-bets” from customers looking to profit from a fall in a share price, or hedge an exposure from their ordinary investment portfolio,” he says. Trades can be made over the phone or via the internet. Bookmakers publish live prices on their websites; illustrations of how
to trade can be found on independent
sites such as One waybet.com and
Tradebasics.com. Financial Spread Betting - Open to Residents Financial spread betting is open to UK residents who can satisfy their bookmaker that they have sufficient funds to trade. The bookies are regulated by the Securities and Futures Authority. People resident in other countries must check the rules in their
jurisdiction. Spread betting is not legal in the US, but is legal in some continental European and Asian countries. 
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