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You Are Here: Home > Stockmarket & Trading > Spread Betting Section > FAQ : Question & answer
Can Spread Bets can be used

to hedge stockmarket risk

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Yes, but then the tax-free bonus might not be such an advantage.

Say you've bought Vodafone, Barclays and BP using a traditional stockbroker but are worried about the market slumping over the next 2-3 months. You can either -

Let's assume you sell the shares short by using spread bets and the market does decline. Your shares will lose money, lets say £1,500, but the short spread bets will make money of around £1,500 as well. Net result, a perfect hedge where no money was made nor lost.

But there's a tax advantage to the above - the spread bet profits are tax-free.

The disadvantage however is if the market rallies. Then the shares would make money but the spread bets would lose. So overall the combined trades would lose you money because the spread bet losses are not allowed to be offset by capital gains.

Overall I don't think spread betting is the best product to use if you want to hedge stockmarket risk, options are not either for these reasons.

So if spread bets and options are not that suited to hedging stockmarket risk what is? In my opinion it's CFDs (Contracts for Difference).

WARNING! - Spread Bet Broker Advice



There are good spread bet brokers and there are bad ones.

Having a good broker won't guarantee you profits but a bad broker will probably lead to losses as a combination of their gamesmanship and suspect software takes its financial toll.

So who do I recommend?

Simple, the 2 brokers I personally use for my own spread betting (and I've used them for years) -

FREE Report : How to Learn Spread Betting and Prosper
How to build the all-important trading experience
Where to get trading help and advice
Which broker to use and why
Simple 2 month training plan to follow
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