Spread betting is perhaps the simplest form of derivative trading around and is certainly the most tax-efficient. Spread bets allow you to bet that the price of an underlying asset (a share, commodity or index) will rise or fall. This means that you could hedge your existing holdings, perhaps betting on a fall in the FTSE 100 to offset the risk of a fall in your UK portfolio.
You could also use spread betting to speculate on your view of an underlying asset (a share price or index level, for example), either trying to profit from a falling price or hoping to make enhanced gains from a rising price. Betting on falling prices is known as ‘going short’, whereas betting on rising prices is called ‘going long’.
The great advantage of spread betting is that gains are totally free from tax. This means you do not have to pay capital gains tax at 40 per cent (for higher-rate taxpayers) on gains over the annual exempt allowance, which is currently 9,200. On the other hand, you cannot offset any losses from spread betting on gains made elsewhere.
Spread betting is also very flexible and allows you to choose risk levels to suit your own...
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