• Spread bets can be a very effective hedge for a stock portfolio
• You may well have some money invested in stocks for the longer term, but feel that the FTSE could suffer some nasty falls in the short term
• To sell your stock and have to re-buy it back may well be prohibitive due to tax obligations as well as the outrageous commissions (and Stamp Duty) that stockbrokers often charge.

Spread bets can be both a sensible and logical product to turn to.

How To Hedge

You could simply sell short the underlying FTSE 100 index or the individual shares that you hold, assuming they are not very small capitalisation stocks as these are generally too illiquid for spread betting companies to make a market in.

If your view turns out to be correct and the overall market falls then you'd lose money on your stock holdings but make profits via your short spread positions, and this profit would have the added bonus of being tax free.

If you were wrong in your bearish assessment and the market rallied then you'd make on your stock holdings, but lose on your short spread bet positions. However in this case your losses would not be tax deductible. If the market moved sideways then neither your stock holdings nor your short spread positions would be showing a profit or loss.

Spread Bets Are Flexible

Don't forget to use the flexibility that spread betting offers because this is another opportunity to use it. You don't for example need to be fully hedged.

You may have £50k invested in cash stocks but only want to hedge part of this, say 25% or 50%. If the market did move lower you'd have some protection against losses to the cash portfolio but still enjoy some upside potential if the stock market rallies.