Spread betting can be a tax efficient way to trade. Capital gains tax (CGT) based on trading profits normally will come in after a net profit of £10,600 in investments. But spread bets are actually not included from (CGT) so for anyone lucky enough to be profiting more than £10,600 on a regular basis then it may be valuable using a spread bet than a conventional account.
Given the fact that most investors are using Isas and pensions to gain the same tax benefit, tax isn’t really the main driving force behind the use of spread betting. It has probably had more to do with commissions and broker’s fees.
If you are looking at the price of financing your position, it is really an enticing position. Where else can investors effectively loan investments at those ranges of rates? Less fluid stocks will attract larger spreads. Using spread bets for smaller stocks aren’t really that effective because once the contract expires and you want to hold on to your position then you will have to double your spread (cost rolling). Then larger the spread, the more spread betting you will have to pay and you will have to work out the benefits of not soliciting the commission against the cost of the spread every time the contract will be due.
The third advantage of spread betting is the leverage due to its novel way of providing an economic way for financing a given position. The drawback is that if ever stocks begin to fall, this often catches many investors off guard and often leads to a downward tilt in share price leads to margin falls. If they are not substantially taken care of the positions will automatically close.
The worst case that could happen is losing 100 % of your initial deposit despite closing out at a loss which only to find the share repelling back leaving you out of the trade and eventually in a losing position. The general rule is to always leave enough considerable cash in the account to continue funding margin calls.
There are also several other discreet benefits of using leverage. First, investors will have the better exposure to all sorts of things normally not experienced by a private investor. You can go short or long and most accounts let you put advance instructions on how to execute orders. For example you can have better exposure to gold futures, oil and even house prices in the UK. The other advantage is the use of charting tools at your disposal that is free of charge.
All the exotic trades can be provided both the unversed and more complex opportunities to hang themselves. Although, if used sparingly and wisely spread bets still offer a great way of expanding portfolio at a limited cost.