Spread betting is a form of market trading that allows you to bet on the movements in price of thousands of different markets. You can earn money whether prices rise or fall and, so long as spread betting isn’t your main source of income, you don’t have to pay any capital gains tax or stamp duty on your earnings, as spread betting in the UK isn’t regarded as a form of trading, but as a form of gambling. In the past few years, there have been numerous instances of spread betting coming under scrutiny for various reasons.
Day Trader Lands Massive Fine
A day trader ended up with a Pounds 700,000 fine after exploiting a spread betting loophole he thought was perfectly legal. Barnett Alexander used Michael Spencer’s City Index platform to make a profit of Pounds 630,000. Mr. Alexander claimed he thought he was acting perfectly legally and that there was nothing wrong with him exploiting loopholes in the way spread betting works in order to make a bigger profit. He would wait until trading was slow, then he would place small share orders on the open market; then he would use the firm’s promises to match prices to buy shares at reduced prices. He would then place orders for a small number of shares and would sell them at high prices. Mr. Alexander said that if he’d known that what he was doing was illegal, he would have stopped immediately, but no one told him.
Spread Betting Taxability
The problem isn’t spread betting itself; what is problematic for the Financial Conduct Authority, the organisation that oversees UK spread betting, is that traders can earn a lot of money without having to pay tax on it; the main concern, therefore, is that traders can use loopholes to make large amounts of non-taxable money. In most countries around the world, including Australia, spread betting is classed as a form of investment, so any earnings made from it are taxed; likewise, any losses made are also eligible to be taxed, which is one of the reasons why spread betting isn’t as popular in these countries. Nothing definite about the taxability of spread betting earnings in the UK has been announced yet, though given the UK’s sensitivity to tax avoidance, it looks likely that spread betting will have restrictions imposed on it in the future.
Spread Betting Popularity
The popularity of spread betting does not, however, seem to be on the decline. On the contrary, spread betting firm CMC Markets is thriving, which offers Forex trading and CFD trading in addition to standard spread betting. One of the reasons why this company’s operating profit grew to Pounds 143.6 million in 2015 was because it offers different types of financial betting to appeal to its wide customer base.
So while there are concerns about spread betting, the popularity of the practice isn’t going to die down any time soon. Whenever there’s a major unexpected event, such as the Swiss franc event in 2015, where the cap was axed and the value of the currency soared against the euro, more people are encouraged to spread bet in order to gain from volatile financial markets. Even if restrictions do come into place, people will still spread to take advantage of the volatility of the stock market.