Spread betting isn’t familiar in the United States. But for people living in the United Kingdom, this is a familiar financial tactic by which investors make extra money, tax free. That may sound too good to be true, but true it is, and that’s because of the way the UK government classifies spread betting as a speculation, not an investment. Investing experts differ over how to most accurately classify spread betting – some choose to call it an investment. In any case, it’s a popular way, through platforms like ETX Capital, to make money, and it’s one that you might be interesting in knowing a bit more about.
Firstly, we’ll talk about the tax-free bit. UK government decides not to tax spread betting because it is a speculation – a prediction about the future which could go one way or another, depending on no direct influence from the one making the speculation. As such (from the government’s perspective), an individual spread bet is just as likely to succeed as to fail. This may be true from a statistical perspective, but it doesn’t take into account the skills of the individual user.
Individual spread betting users can become quite skilled. This is where it’s important to understand the basics of the spread betting process. Spread betting platforms give users a look at the moment-by-moment value fluctuations in a variety of financial options, currencies, and other financial entities. The user sees two numbers related to the current value of the thing in question: “Ask” and “Bid” (sometimes known simply as “Buy” and “Sell”). If a user “Buys” shares in an option, they aren’t actually buying pieces of the option. Instead, they’re betting that the future price of that option will exceed the current Buy price. The same goes for Sell purchases. The more the price changes either above or below your chosen direction, the more you get. If the price goes in the direction you did not choose, you lose your initial investment.
The thing is, it’s not a game of pure chance. There are trends to the value changes of all different options and currencies. People who understand the elements that contribute to these value changes will be much more able to anticipate the changes than someone who is merely guessing. Can a person achieve such a level of expertise that they are able to correctly anticipate these changes every time? Of course not. Can they greatly improve their chances above 50%? Absolutely.
For people like this, spread betting proves to be a great way for people to earn extra money without having to pay taxes on it. It requires a lot of research, learning, and accumulated skill, but it’s possible to make a lot of extra money this way. For people who make their living entirely by spread betting, paying taxes becomes necessary again, so there’s the rub. But for the dedicated hobbying, spread betting can be an incredible addition to income, providing it is done well enough to make money at all.