What is Spread Betting?
Spread Betting is, at its root betting. While it can be argued it is not as random as the horses or a casino, Spread Betting is educated risk taking. The same can be argued of course about traditional share trading.
Spread Betting vs Share Trading
Most people have heard of share trading, but Spread Betting is less widely known, partly because it is newer, and also because it is generally aimed at a more advanced type of trader.
Fundamentally, Spread Betting is simply betting on which way a share or financial instrument (such as foreign currency or a market index) will go. It's called 'Spread Betting' because of the difference between the buy and sell prices - or the spread. If you don't know about buy and sell prices, read more on [what is a spread].
Where Spread Betting is different to traditional trading is that you don't actually own shares or currency - you simply bet what it will do. For instance, you might bet that Vodafone's share price will go up - and want to bet £10 for every penny it moves. Alternatively (and one reason Spread Betting is particularly useful), you can bet on a share or financial instrument going down - for instance, you might bet £1 for every penny that Barclays falls.
Of course, this can be very dangerous if a bet goes wrong; with traditional share trading, the most you can lose is your initial investment - with Spread Betting, the potential for loss is much greater, as brokers will generally let you trade on margin - or basically play with more money than you own. Read more on [the dangers of trading on margin].
It is also worth bearing in mind the incredibly high rate of individuals who lose money at Spread Betting - many, many more people lose than win. Google 'Spread Betting Horror Stories' for some examples.
The Upside of Spread Betting
That all said, Spread Betting can be used as an incredibly powerful tool as part of an investment strategy, if the proper precautions are taken. Spread Betting profits are not subject to Capital Gains tax in the UK, and there is no stamp duty or commission on transactions - the Spread Betting companies make their money on the spread itself. Read more on [how spread betting companys make money].