If you are looking to invest money and make a decent return i.e. better return than just sticking it into a high interest bank account, equities are the asset of choice for most people. There are various products available that can give you exposure to the stock market, however, there are number of advantages of spread betting has over more conventional form of stock market investments. The most influential or key reasons for choosing spread betting over buying shares are:
Breadth of markets available
Spread betting is leveraged investing
Spread betting is geared. What does this mean? Essentially this means for every £1 you place on a spreadbet, the Spreadbetting firm is lending you an additional amount on top of that. This additional amount will depend on the type of product you’re investing in, and the spread betting firm you use. You can compare the different spread betting firms here.
As an example of the power of leveraged investing, people often neglect the fact that leverage is major part of reason that real estate investments have made such a good return in the past 50 years, because people were borrowing 90% of the cost of the house from the bank.
Think of it like this, if you invested £10,000 and it made a 10% return in a year, whilst that’s good in investment terms, it’s only £1000.
However, if you use that £10,000 to get leverage so that the investment is actually worth £100k (as is the case with spread betting), then if the £100k makes a 10% return in the year, then you’ve made £10k, which is a 100% return! Even if you had to pay 5% financing costs (e.g. mortgage interest), then you still make £5k in one year, which is a 50% return on your initial investment.
You might think it sounds too good to be true, but it isn’t. It’s just that the downside is that it can go the other way if you don't manage your risk properly. Read Key things to know about Spread betting to find out more.
No Taxes to pay on Spread betting
Because you are not physically buying shares, in the UK there is no stamp duty to pay, no capital gains tax on earnings, no income tax on dividends.
In the UK, if you invest into an individual stock in the stock market (or elsewhere), you are subject to c40% capital gains tax on increases in value of the stock over a certain amount, AND to income tax on any dividends received.
However, any gains and/or income received as a result of spreadbetting are currently NOT subject to any tax. So if you do hit big with a stock, you don’t have to worry about giving anything back to the taxman when you spread bet. This becomes more relevant as your investment stakes become higher, as there is an annual capital gains tax allowance you can use to offset any initial gains on an individual stock investment.
Spread betting provides access to a breadth of markets
Spread betting instantly offers you access to a much wider variety of markets than conventional investing as soon as you have set up your account. For example: Short selling, Forex, International stock indices, Shares, Commodities, Binary bets, Options, Custom bets, interest rates, sectors and house prices. Without spread betting, it is very complicated for an individual investor to get exposure to this breadth of markets.