Spread betting is big business. Tradefair estimates that growth is financial spread betting is around 30-40% per annum. The majority of these users are city traders already with plenty of experience and knowledge in financial trading.
So why exactly are so many traders moving from traditional methods of share trading to spread betting?
First of all, you can make far more profit from a smaller starting capital speculatig on the markets through spread betting as opposed to conventional trading.
One reason is that because spread betting involves trading on margins and leverage, you can make much greater profits with a smaller bankroll. It is well known that you can make a 1,000%+ return on your wager by correctly predicting changes in the market through spread betting. Imagine for instance, that we predicted the stock price of BP shares was going to rocket up 10 points from 100p to 110p. By spread betting on 10 per point, we would end up making a 100 profit at the end of closing. Contrast this to actually purchasing 100 worth of shares in BP, and we would only make 10 profit (10% ROI) from the increase. As this example demonstrates, trading on leverage allows you to make far bigger gains on small increases in the markets. The downside however is that you can lose just as much money. Everyone knows that in spread betting you can end up losing far more than your initial deposit - hence why it is so risky.
Another reason spread betting is more popular than conventional trading is that all the profits that you make from it are tax-free and exempt from stamp duty in the UK. Conventional shares trading requires you to pay around 40% capital gains tax (difference between buy and sell price), along with a 0.5% stamp duty charge when you purchase shares.
Because spread betting is immuned from tax (so long as you can prove other main sources of income), city traders can end up making 50%+ more profit speculating the market through betting as opposed to conventional trading.