Spread Betting is a way of trading the financial markets that is particularly attractive to Irish and UK residents as profits are exempt from tax*.
Instead of trading in amounts, or lot sizes, spread bettors choose a monetary amount to bet per pip or point move for a financial instrument.
David thinks the EURUSD exchange rate will rise in value.
He places a BUY bet of £1 GBP per pip (0.0001).
This means for every pip the EURUSD rate rises David will profit £1 GBP.
Conversely, for every pip it falls he will lose £1 GBP.
Spread betting example: How much does David’s trade cost?
Bet size per pip X Spread = Spread charged.
Each financial instrument has its own spread, which is the cost of the trade.
When spread betting the total spread charged is the bet size multiplied by the spread for that instrument.
In David’s example he bets £1 GBP per pip times the EURUSD spread which is 1.8 pips.
So the total spread charged for David’s position is £1 .80.
* Spread-Betting is exempt from stamp duty and Capital Gains Tax in the UK and Ireland. Please note that tax laws are liable to change and may differ based on your individual circumstances and jurisdiction.