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FAQ Page 2 - Question 19

Q: I don't like to speculate so can I just use spread bets to hedge my exposure to stocks that I have in my portfolio?

A: Yes, it's easy to do. Say you were long Vodafone, ICI, HSBC, BP and Glaxo you could either short spread bets on the individual shares, or if you want to make it easy just short the FTSE 100 index. Remember though that it's not a perfect hedge because of the tax-free implications of spread bets.

The tax-free situation has to be fully understood in this context. Tax-free is only an advantage if you make money on the hedge, if you lose you can't offset the tax losses against profits in the portfolio.

For example, say you shorted the FTSE 100 index and the market went up 10%, you'd make taxable gains in your portfolio but the accrued losses in your spread bet account would not be offsettable because they are gambling losses. In this situation it's perhaps better to use Contracts for Difference (CFDs) to hedge.

For the LearnMoney guide on Contracts for Difference (CFDs) - Click Here