Benefits and Risks of Spread Betting & CFDs

Spread betting and CFD trading appeals to a wide variety of individuals who want to take advantage of the versatility and great value that they can offer. You do not need to be an experienced investor to trade, but you do need to research the products that you wish to trade and be aware of the risks associated with spread betting and CFD trading.

The Benefits

The following reasons explain why spread and CFD trading might appeal to you:

 

Tax Free Profits*

Any capital gains you make from financial spread betting are completely free of Capital Gains and Income tax (for UK residents).  You do not have to pay stamp duty tax* when you purchase a share.

No Stamp Duty*

Financial spread betting is exempt from UK stamp duty.  Trading shares using CFDs is exempt from UK stamp duty.

 

Bull or Bear

One of the most obvious advantages of spread betting and CFD trading is the opportunity to short (or sell) the market. You can therefore profit from both rising and falling markets.

 

Hedging

Many investors use spread betting and CFD trading to hedge their existing share portfolio. For example, if you have some shares which are decreasing in value in the short-term, you could “Sell” the value of the share using a sell bet with Investors Intelligence Spread Betting and possibly make a profit to counter-balance the decreasing value of your shares.

 

Stake or Contract Size of Your Choice

Spread betting and CFD trading also allows you to trade in sizes smaller than those usually available in the underlying market.

 

Trade in One Currency

On the Investors Intelligence Spread Betting trading platform you can trade on a huge variety of financial products in one place and in one currency. We currently offer 9 currency accounts which means you can avoid costly exchange rates and can, in general, trade in your own currency.

 

Trade on Margin

Spread bets and CFD trading are margined trading products, which means you need only deposit a small percentage of the full value of your trade leaving your excess capital to continue working hard elsewhere. For example, a £1 bet on a share is the equivalent of buying (or selling) 100 real shares. On most shares our minimum Initial Margin Requirement (deposit) is 3-5% of the underlying value of the shares which means that you can make a bet in a share with as little as 1/30th of the money required to buy the actual real shares from a stock broker.

 

No Commission or Fees

As Investors Intelligence Spread Betting is not a stockbroker, we do not charge commission or fees. We make our profit from the spread we add to the underlying market prices, which result in our quotes. Plus, don’t forget, that UK residents benefit further because your profits do not incur Capital Gains and Income Tax, and you do not have to pay stamp duty tax* when you purchase a share.

 

The Risks

Whilst Spread betting and CFD trading offer many benefits, it is important to note that it carries a high level of risk to your capital, and you can lose more than your initial deposit. Investors Intelligence Spread Betting have a mandatory stop loss policy whereby a stop loss is assigned to each and every trade that you open. You can choose to place the stop loss when you open the position but if you don’t, the computer will automatically assign a stop loss for you. However please note that these stops are not guaranteed, so in the event of market gapping these orders will be filled at the next best available price. If you prefer to have your stop loss price guaranteed, you can place a Guaranteed Stop Order at a small premium. For more information please refer to the Market Information Sheet.

 

There are a number of other risks that you should consider prior to spread and CFD trading:

Leverage risk 

The leveraged nature of spread betting means that a relatively small move in the price of the underlying instrument of a trade can cause an immediate and substantial loss to you, including a loss far greater than the amount of your initial investment.

Stop Loss Risk

As mentioned above, Investors Intelligence Spread Betting have a policy that requires a mandatory “stop loss” on every open position placed on the platform. Subject to holding sufficient funds in your account, you can alter the level of this stop loss to suit your trading strategy but the stop loss cannot be deleted. This means that if you do not have the required funds in your account to move this stop loss or if the level of the stop loss is breached prior to you moving this stop loss, then the position in question will be closed out, which may pose a risk to your trading strategy. The mandatory stop loss is not guaranteed (see Gapping Risk below). Consequently, you can lose more than your initial investment. You can opt for a Guaranteed Stop Order for a small premium on the platform which guarantees that your stop loss will not be subject to gapping.

Gapping Risk

Gapping refers to an occurrence whereby the market moves from one price directly to another significantly different price. There can be many reasons for gapping: economic figures; company announcements; political events; natural disasters etc. When this happens an order will be executed at the Investors Intelligence Spread Betting quote based upon the first price that Investors Intelligence Spread Betting is reasonably able to obtain on the underlying market. We offer Guaranteed Stop Orders which eliminate gapping risk as your maximum losses are then limited to your chosen stop level. Please note a small premium is charged at the time of placing the Guaranteed Stop Orders and is not refundable if it expires or is cancelled.

Example of gapping

You have a long position on Barclays Rolling Daily, having bought 1000 points at 20.32 with a stop loss set at 19.32. The price of Barclays Rolling Daily, dropped through the 19.32 level on the back of a profits warning. The first price that Investors Intelligence Spread Betting can reasonably offer after the announcement of the profits warning is 19.07-19.10. Rather than your position being closed at your stop loss level of 19.32 it is closed at 19.07, meaning that due to gapping you have incurred a loss which is £250 more than the loss you would have otherwise suffered had your position been closed at 19.32.

* Tax laws can change

To access our data please subscribe or open a trading account.
To access our data you must either subscribe or have an active trading acocunt.