Spread Betting FAQs

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 -

• Sell short the individual shares using the quarterly bets (should be cheaper to trade), or
• Sell the FTSE short

  Unsure of what 'Short dealing' is - see this guide

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.

Stockmarket/Trading Providers
Spread Betting brokers CMC Markets TD Waterhouse Spread Betting E*TRADE Spread Betting	Online Brokers E*Trade Hargreaves Lansdown Stockbrokers TD Waterhouse	CFD brokers Saxo Bank Online Trading TD Waterhouse CFDs City Index

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).

See also

• Markets to trade - Stockmarket indexesMarkets to trade - shares
• Introduction to 'Short Selling'
• FAQ section - Can Spread Bets be used to longer term trade the markets
• FAQ section - The difference between Spread Bets and CFDs (Contracts for Difference)