TD Financial Spread Trading

What is Financial Spread Trading?

Financial Spread Trading, sometimes known as financial spread betting, is one of the many ways you can trade on the global financial markets. Place a bet that the market will rise, or alternatively, that the market will fall. If you are correct and the market moves in your favour, you will make a profit of your initial stake multiplied by each point that the market moves in your favour. If you are wrong you will make a loss of your stake multiplied by each point that the market moves against you.

Financial Spread Trading carries a high degree of risk to your capital. Losses can quickly and substantially exceed your initial investment and you may have to make further deposits. Financial Spread Trading is not suitable for all investors. You should fully understand the risks and seek independent advice if necessary.

Financial Spread Trading Explained

• Leverage - enables you to produce a greater percentage profit or loss from each trade. It is important to realise that losses can quickly and substantially exceed your initial investment and you may have to make further deposits.
• Hedging gives you the ability to protect your portfolio against share price drops.
• Trade long - you could profit from rising share prices.
• Trade short - you could profit from falling share prices.
• Exposure to UK, US, European and other international equities, indices, sectors, commodities and current pairs.
• Financial Spread Trading is currently free of UK Capital Gains Tax (CGT) – although this can not be used to offset against capital gains for CGT purposes. All spread trades are free from stamp duty. Tax laws may change and are subject to individual circumstances.

What is the ‘Spread’?

The "spread" in the phrase spread trading refers to the difference between the Sell (Bid) and Buy (Offer) price quoted by a spread trading company. This price is calculated by adding additional points around the live (or the estimated future) market price of a financial product. For example, if the FTSE is trading at 5000.5 our quote might be 5000-5001.

What are the tax benefits?

Spread Trading is a highly adaptable trading tool. One of the main benefits of spread trading is that all profits are free of Capital Gains Tax. You should be aware that, whilst profits made from Spread Trading are not subject to Capital Gains Tax (CGT), you are unable to offset any losses against capital gains for CGT purposes. Please note the tax treatment of these products depends on the individual circumstances of each customer and may be subject to change in future.

Leverage

Financial spread trading is a margined product. You only deposit a fraction of the overall value of the trade (typically 3-5%). Financial Spread Trading therefore allows you to take a much larger position than if you were buying the full-value instrument itself. However, losses are magnified in exactly the same way

Maintaining Positions

In addition to the Margin Requirement to establish a position, if your position moves against you, you may need to make further deposits. This is because in the event of market gapping you may not be filled at the level you requested which means you may lose more than your initial deposit. It is important to understand that you can make or lose much more than your initial deposit, unless you use a Guaranteed Stop Loss order (a premium is charged for this service). When you hold an open position, the minimum deposit level must be maintained at all times otherwise an auto-close out function will come into force. However, you can still potentially lose more than your initial deposit unless you have chosen to use a guaranteed stop loss.

How does Financial Spread Trading work?