Protecting Your Assets
One of the major advantages of spread betting is that as a form of gambling it is exempt from Capital Gains Tax. Whilst it is, obviously, subject to gambling tax, and the exemption from Capital Gains Tax is by no means something that will last forever, this means that you can take steps to protect your assets through spread betting, and get the tax break from it.
If, for example, you had built up a portfolio of assets that was quite sizeable – large enough that you didn’t want to sell it and be subject to CGT – but you were confident that the value of your assets was about to plummet, you’d want to make sure that you were protected. One method of doing this would be to put a spread bet on the market to drop, this would mean that whilst the value of your assets deteriorated, you would make a profit on the spread betting that would offset your losses. Now if the market didn’t move, you obviously would have lost your stake, and if the market rose you could lose a significant amount of money, but your assets would go up in value too.
This last option is not altogether unlikely, but if you know your market well and are careful it shouldn’t happen to you. Even if it does, you have to bear in mind that it is the value of your assets that is most significant and should be protected, and also to carefully calculate the value of your shares, and the size of the bet that you want to place, so that they protect each other as perfectly as possible.
Another example might be if you were confident that the value of your house was going to drop in the near future. You could put a spraed bet on the Halifax House Price Index, and if the value did indeed drop you would recoup some of the losses. Of course the HHPI is not a specific thing, but if might offset your losses. This should be viewed with more caution, because there is a very real possibility that the value of your house could drop and the HHPI not move, or even worse rise and you lose out twice. Very much depends on the location of your house.
Spread betting is gambling, and it is gambling with potentially extremely high stakes. You are perfectly able to win massive amounts of money and lose massive amounts of money and you should always make sure that you know the level of your stop loss and how much you can afford to lose. always try to make sure that their customers are aware of the risk, but there is only so much they can do and ultimately the final choice rests with you. If you are going to spread bet make sure that you know your market and how it will react to other events. This may not stop you from losing money, but it will help you minimise your losses.