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The Difference Between Share Trading and Spread Betting

Compare Spread Betting and Share trading

There are key differences between spread betting and share dealing to be aware of. Tax treatment is very different for example and with spreadbetting you can make a profit on a falling market.

Listed below are the key differences to help your understanding.

Summary of Differences

Let's look at a summary of differences between spread betting and share trading:

  • When you place a spreadbet, you don’t own the underlying share. Therefore your capital requirement is reduced. If you were to buy 1000 shares of BP priced at 500p each this will require an investment from you of £5000. If the price rises to 550p you will have made a profit of £500 but will have required you to tie up your capital to achieve it. Alternately you could open a £10 per point buy trade on a spreadbet and if the price rises to 550 you come away with the same profit without tying up the same amount of capital.
  • Spread betting enables you to make profits on a falling price. If you think that a share price will go down, you can place a sell trade and gain multiples of your stake for every point the price falls.
  • Share Trading is subject to 0.5% stamp duty in the UK on all trades. Spread betting is exempt from stamp duty given you do not take ownership of the asset.
  • UK Capital gains tax (CGT) is not applied on spreadbetting. For share trading, under current UK laws, a minimum rate of 18% CGT is applied on profits over your personal allowance.
  • On spread betting there is no trade execution charge. Share trading platforms will extract a trade charge on both the buy and sell side of the trade. Usual rates are between £10 and £15 per trade. With spread betting there is a tight spread on the price, with as little as 1 point in highly traded markets.
  • With spread betting there is no settlement period, profits (or losses) are instantly applied to your account balance. In share trading, your gains are not available until the trade has settled, usually two to three days after closure.
  • With spread betting you can start as small as you like with as little as £1 per point. Share trading will usually require a more significant investment to get started.
  • Spread betting is higher risk and you can move into a loss making position if the market moves against you.
  • Spread betting will charge a financing rate for trades held open overnight whereas share trading usually attracts a larger quarterly charge for administration fees.
  • Dividends for shares owned are subject to Capital gains taxation. Spread betting systems will build the dividend into the price with no CGT charge although there is a small administration charge.
  • For both spread bets and share trading you can lock in profits by setting stop orders whilst still keeping the trade open.

Stamp duty free

Capital Gains  Free

Short Selling

Commission Free

Leveraged

Overnight Finance FREE

Shares

N

N

N

N

N

Y

Spread bets

Y

Y

Y

Y

Y

N

For many traders, ultimately, their portfolio becomes a mix of long term share investments combined with short term spread betting. Why chose one option when you can have both.

 
 

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