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Leveraged trading: borrowed exposurerisk 5 of 5: very high, you can lose everything fast

Spread betting

Rules, protection and tax below are for Japan.

What it is

A UK and Irish oddity: a leveraged bet on a market price, structured as a wager rather than an investment so that gains escape capital gains tax. Mechanically it is a CFD with different paperwork: you stake a sum per point of movement, the broker quotes a spread, and financing is charged on positions held overnight.

The tax treatment cuts both ways. Winnings are tax free, but losses cannot be set against anything, and since most clients lose, the tax break helps the few and the loss rule hurts the many.

Regulated by the FCA with the same leverage caps and loss disclosures as CFDs. The same 65 to 80 percent of retail clients lose money.

How it works

  1. You choose a market and a stake per point, long or short, and the broker quotes a two-way price.
  2. Profit or loss is the number of points moved times your stake.
  3. Margin is required up front and overnight positions pay financing.
  4. Positions are closed by you, by a stop, or by the broker when margin runs out.

The honest pros and cons

For

  • Tax free winnings in the UK and Ireland.
  • Stakes can be small and markets are wide.
  • Regulated brokers must protect you from going below zero.

Against

  • Most clients lose, and losses get no tax relief.
  • Leverage and financing work exactly as in CFDs.
  • The broker is the counterparty and sets the prices.
  • Legally gambling, which is a fair description of the typical outcome.

Getting it in Japan

not researched

Wherever you are

  1. Read the loss statistic on the broker's homepage and decide whether you believe you are the exception.
  2. Use a demo account for months and keep an honest record.
  3. If you proceed, use guaranteed stops and stake money you have already written off.

Go deeper

Also called

financial spread betting, spread trading

Often confused with

  • Contract for difference: A bet on a price move made with borrowed exposure; you never own the asset and pay daily interest on the borrowed part.
  • Listed options: A contract giving the right to buy or sell at a set price before a set date; most bought options expire worthless.
Spread betting in Japan · wealth-coop