But I don’t want to gamble! I want to trade the stock market…

Spread betting is just a way to play the market, a spread bet is a leveraged variant of the underlying instrument. Firstly, it is important to understand that if you want the tax benefits of spread betting then you have to open a bet not a financial trade. In other words you cannot deal on an exchange and say you are betting. You need to bet with a counter party (book makers license holder) so they are the counter party to your trade. In effect when you bet you are betting with a book maker even though you are betting on a financial product.

Spread Betting: A Chancy Business

“I’ve recently pondered the name ‘spread betting’ and wonder if it pushes some subconcious buttons that make me think I’m expected to gamble. Some of the trades I have made have been spontaneous and complete and utter gambling. Naturally I have consistently lost money on these trades. On the gambles I would say I win about 1 in 5 and lose 4 in 5. I keep finding myself drawn to do these quick trades though. Scary stuff. A constant battle against myself. Stop chasing the quick money.”

Sometimes you will “win” – sometimes you will lose. But you are speculating – not investing. As long as you understand that and don’t try to convince everyone else that spread betting is an investment. If you try to time the market you are speculating… Likewise, if you try and trade securities – you are speculating not investing. And be careful not to confuse luck with skill as the markets have a habit of handing out extremely large tuition bills.

Having said that anything can be gambling if you just close your eyes and take your shots and then bad mouth the endeavour you are trying to take part in. Be it practicing sports, education, or a profession. Maybe luck plays a part, but everyone needs luck to be successful in life. Do you really think that people who consistently win are just luckier than anyone else? You don’t put in the time and work and you will not succeed – period. I don’t know of anything that isn’t a gamble if you don’t prepare for it. So YES, like everything else spread betting or any form of trading can be gambling if you take part in it without the proper experience and planning and just throw in your entries and exits based on whims and gut feeling.

For instance when I got into trading I started reading every book I could get my hands on, put together a few trading strategies from the books and then practiced my concoction of tricks on demo. So when I first started to get into it, everyone and especially my girlfriend would say right to my face that it was gambling, and then fast forward many months and I started to make some serious monies and everyone’s attitude changed and they looked at it as some kind of mystical magic ATM not knowing how hard it truly is.

“Sorry, but that’s the price you pay for the tax free aspect – remember that with spread betting you have to bet not transact otherwise you lose the no Capital Gains Tax part of the deal!”

However, after a few months of good wins, one major mistake resulted in my very first blown account. I did not have my stop losses in place and my spread betting platform disconnected for a few hours, and it lost me a huge sum and it taught me an important lesson but it also hurt and knocked the fear of the dangers of over leveraging in me. At the time, I was day trading 100pts a point on indices and would leverage myself to close to the maximum (well it didn’t seem as insane back then) however, because I did practice my strategy on demo for months I did have a good edge. However, I was not prepared for the mental obstacles live trading throws at you and after a long number of straight winning trades I had developed a God’s complex and thought I could not be wrong and did not have a plan setup for if a trade went against me or some other technical problem and I had my first and only blown account and I have to tell you, I’m glad I had it very early on in my trading career because it taught me a few very valuable lessons.

I know you read about mistakes people make in the books and everyone else tells you just like I am about to but these lessons don’t truly hit home until you make the mistakes and pay your dues. (so start small). Also, I am not trying to take anything away from the books and advice people on discussion forums and blogs give out because without that prior knowledge and insight you may not even be able to comprehend what you did wrong. You might get pissed, blame your broker or spread betting provider and everything else and end up on a broker review site calling your broker or currency trading in general a complete scam.

“As all spread bets have a fixed expiry date, it is classified as betting, potentially saving you as much as 28% of your net profits which would normally be owed as Capital Gains Tax if you had bought shares directly.”

Many people jump in with lots of money after a few good demo wins and then they are so scared of losing it that they don’t really follow the plan they hap haphazardly put together over a few nights. Take a few months and create a consistent plan of when to enter and when to get out and how much you are willing to risk and make (start small, learn and grow).

Incidentally the fact that financial spread betting is considered to be a gambling activity by HM Revenue & Customs means that spread trading is not so effective when used for hedging purposes since losses cannot be offset against gains elsewhere in a shares portfolio for capital gains tax purposes. In contrast to this, CFDs are taxable and as such are more commonly used as a hedging mechanism.

Having said all that I agree that gambling has a stigma in society. I’m not a religious person but if it’s down as a “sin” somewhere then that’s probably the historical fact for it. How about we rename the whole market spread trading to encompass all the different ways it could be traded and take out the stigma? 😉

A trader with a plumbing background had this to say: “I think different people have different levels of risk with everything in life. I don’t like going up on roofs to put boiler flues in, but my friend will walk up the roof like he’s walking down the road. I have a plan to control my risk and the main point is that this is a marathon not a sprint, I will try and build my pot up slowly and go from there. I don’t believe this is anymore riskier than doing a big plumbing job, supplying all the materials and then not getting paid, I have been there and it knocks the s*** out of you, you have no control over what the customer is going to do, I have a certain control over trading, a) when I enter the market/if I enter b) when I exit the market, c) I have stops in place to hopefully protect my capital as best possible”