FTSE 100 Spread Betting UK – Beginner’s Guide

As we cover in more detail in the section below – there are several characteristics that make FTSE 100 spread betting UK a popular marketplace for traders – such as:

• You can profit from rising and falling markets – as spread betting platforms allow you to go long or short
• You can spread betting the FTSE 100 with leverage of 20x
• Some spread betting sites – like Pepperstone, allow you to trade commission-free

Additionally, FTSE 100 spread betting UK markets can be traded free of stamp duty and capital gains tax. This is in stark contrast to traditional stock trading or forex trading platforms.

How Does FTSE 100 Spread Betting UK Work?

There are several key aspects that you need to have a firm grasp of before you attempt to spread bet the FTSE 100. In entering this marketplace with your eyes wide open – you will have a much better chance of making potential profits and protecting your bankroll from losses.

As such, in this part of our guide on FTSE 100 Spread Betting UK – we are going to explain the fundamentals in much more detail.

Point Movements and Stakes

First and foremost, the FTSE 100 is priced in points, while traditional shares are valued in pennies.

For example:

• At the time of writing, the FTSE 100 is being quoted at 6,859.87 points.
• If the index increased by 10% – this would see the FTSE 100 priced at 7,545.87 points
• In the world of spread betting, this would represent a price movement 686 points

Now, your profit or loss on this trade would depend on two key metrics:

• The amount you stake per point movement
• Whether or not you correctly predicted the price movement of the FTSE 100

If, for example, you went ‘long’ on the FTSE 100 and staked 50p per point – this trade would have made you a profit of £343. This is because the index moved by 686 points in your favor. However, if you placed the same stake on a ‘short’ order, you would have lost £343.

Fortunately, many FTSE 100 spread betting UK platforms allow you to set up a guaranteed stop-loss order – subsequently allowing you to limit your losses. For example, if you had set your stop-loss at 40 points – the most you could have lost from the above trade would have been £20 (40 points x 50p per point).

Entering and Exiting the Market

As we have mentioned a couple of times – you need to choose from a long (buy order) or short (sell order) position when trading the FTSE 100 spread betting market.

• If you enter the trade with a long position, this means that you think the index will rise in value.
• If you enter the trade with a short position, this means that you think the index will fall in value.

When it comes to exiting your FTSE 100 spread betting UK trade (i.e. closing your position) – you need to:

• If you entered with a long order, close with a short order
• If you entered with a short order, close with a long order

As per the above, the process of entering and exiting a FTSE 100 spread betting UK position is very similar to forex and CFD trading.

Leverage

Both the CFD and spread betting markets are backed by financial derivatives. In Layman’s Terms, this means that you can speculate on the future price of an asset – like the FTSE 100, without actually taking ownership. As a result of this, you can spread bet the FTSE 100 with leverage.

The FCA allows retail investors in the UK to trade the FTSE 100 with leverage of up to 20x. This means that by staking £1 per point – your position is amplified to £20 per point.

To put it another way:

• Let’s say that you enter a long position on the FTSE 100 at £2 per point
• You apply leverage of 20x on this trade
• The FTSE 100 increases by 30 points
• You would have made a profit of £60 had you not applied leverage to your position
• But, as you applied leverage of 20x – your profit is amplified from £60 to £1,200

You need to have a full understanding of the risks associated with leveraged spread betting trades. This is because you can lose your entire stake – should your position go against you by a certain amount.

For example, if you traded with leverage of 20x – this translates to a margin requirement of 5% (20/100). As such, if your FTSE 100 spread betting UK trade went in the wrong direction by 5% – your position would be closed by the broker and you would lose your margin.

Market Duration

Irrespective of which spread betting instrument you wish to trade – all markets have an expiry date. This is purposeful – as it allows spread betting to retain its status as ‘gambling’ – meaning no tax is liable on capital gains.

Many spread betting brokers offer at least two trade durations on the FTSE 100 – a daily market and a quarterly market. If you still have an open position on the FTSE 100 and it expires – this simply means that your trade will be closed automatically.

For example, if you are 40 points in profit and the expiry date is triggered – you will still make 40 points. If you wish to remain in the market, you simply need to open a new position.

FTSE 100 Trading vs Spread Betting: What is the Difference?

The only way to trade the FTSE 100 is via a financial derivative. This is because the FTSE 100 is made up of 100 individual shares – all with various weightings. For example, Diageo has a weighting of 3.83% while Natwest Group is much lower at 0.50%. This is because the former has a market capitalisation of £74 billion while the latter is at £22 billion.

With this in mind, when trading the FTSE 100 you can do so via a CFD instrument or a spread betting market. Both operate virtually like-for-like, albeit, spread betting is the better option as your profits are tax-free.

Why Might Some Traders Do FTSE 100 Spread Betting in the UK?

We have briefly discussed why FTSE 100 spread betting UK is popular with traders and financial speculators. In the following section, we elaborate on these points.

FTSE 100 Spread Betting Tax

One advantageous outcome of trading via a spread betting FTSE 100 broker, is that there is no taxation to take into account. This isn’t the case when you buy shares in the traditional way – as if you sell them for more than you initially paid the profits are liable for capital gains tax.

Plus, if you receive any dividends from your shares – this is also taxable. Furthermore, when you initially make the share purchase – you will be charged a stamp duty tax if the company is listed on the London Stock Exchange (LSE).

Note: FCA-regulated broker eToro waivers the aforementioned 0.5% stamp duty tax – should you wish to add some FTSE 100 shares to your portfolio. 

On the other hand, when trading the FTSE 100 via a spread betting instrument – you won’t pay any capital gains tax on your profits. As we briefly noted earlier, this is because financial spread betting falls within the remit of gambling.

5% Margin Requirement

During normal economic conditions, the FTSE 100 is a relatively stable asset class. This is because it is backed by some of the largest companies in the UK market. Think along the lines of AstraZeneca, GlaxoSmithKline, HSBC, British American Tobacco, and Unilever.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81.7% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.